Date of Degree
Finance | Finance and Financial Management | Macroeconomics
Affine, asset pricing, surplus consumption, Kalman filter, risk aversion, GMM estimation
The thesis examines a blend of Asset Pricing topics: joint stock-bond pricing, consumption-based asset pricing puzzles, time variation in risk preference, among others. In chapter one, I first review the literature on respective topics in search of a consolidated framework of resolution. I then propose one, a consumption-based affine model that jointly prices bond and stock in closed form. The tractable feature of the price solutions remains standard as in affine termstructure of interest rates, but presents novelty for the stock prices. In chapter two, I discuss the GMM based procedures for model estimation. In chapter three, I interpret the empirical results. I find the model broadly matching most first and second moments of stock, bond and macro variables, the time-series behavior and long-horizon predictability of returns. I contrast my model with prior frameworks to reveal some of their imprecise predictions and my model’s more plausible accountability in risk aversion. Specifically, a revisit to Campbell-Cochrane habit model using current data exposes the increasingly widening gap in post-1990s price-dividend ratio predictions. Meanwhile, an out-of-sample test indicates improved predictive power in my model for stock price dynamics particularly during more recent decades.
Lou, Jun, "Surplus Consumption, Habit Utility and Moody Investors" (2017). CUNY Academic Works.