Synopsis
Seminar paper from the year 2021 in the subject Business economics - Investment and Finance, grade: 1,0, University of Frankfurt (Main) (Finanzen), language: English, abstract: This paper aims to explain the countercyclical behavior of the equity risk premium and the stock return volatility by introducing an external habit formation feature in the standard representative-agent consumption-based asset pricing model, in form of the so called "catching up with the Joneses" preferences. These preferences imply that the relative risk aversion of the agents in the economy is constant over time and varies across the agents, which generates an endogenous wealth process, that in turn creates a countercyclical behavior in the risk premium and the conditional stock return volatility. As the agents with lower risk aversion distribute a greater fraction of their wealth to risky assets, their wealth decreases relatively more in reaction to cyclical downturns, shifting the aggregate wealth towards more risk averse individuals. These more risk averse agents, however, demand a higher compensation for risk, leading to an increase of the aggregate equity risk premium in response to a fall in stock prices. One of the most studied topics in modern economics are the market mechanisms that lead to the determination of asset prices in an economy. The empirical research indicates that there is a link between the historically observed asset prices and macroeconomic developments. One of the most important observations are the countercyclical behavior of the equity risk premium and the stock return volatility, implying that the excess return of common stocks over the risk-free rate during business cycle troughs is significantly higher than during expansions.
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External Habit Formation and Asset Prices
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External Habit Formation and Asset Prices
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Taschenbuch. Etat : Neu. This item is printed on demand - it takes 3-4 days longer - Neuware -Seminar paper from the year 2021 in the subject Business economics - Investment and Finance, grade: 1,0, University of Frankfurt (Main) (Finanzen), language: English, abstract: This paper aims to explain the countercyclical behavior of the equity risk premium and the stock return volatility by introducing an external habit formation feature in the standard representative-agent consumption-based asset pricing model, in form of the so called 'catching up with the Joneses' preferences. These preferences imply that the relative risk aversion of the agents in the economy is constant over time and varies across the agents, which generates an endogenous wealth process, that in turn creates a countercyclical behavior in the risk premium and the conditional stock return volatility. As the agents with lower risk aversion distribute a greater fraction of their wealth to risky assets, their wealth decreases relatively more in reaction to cyclical downturns, shifting the aggregate wealth towards more risk averse individuals. These more risk averse agents, however, demand a higher compensation for risk, leading to an increase of the aggregate equity risk premium in response to a fall in stock prices.One of the most studied topics in modern economics are the market mechanisms that lead to the determination of asset prices in an economy. The empirical research indicates that there is a link between the historically observed asset prices and macroeconomic developments. One of the most important observations are the countercyclical behavior of the equity risk premium and the stock return volatility, implying that the excess return of common stocks over the risk-free rate during business cycle troughs is significantly higher than during expansions. 20 pp. Englisch. N° de réf. du vendeur 9783346385291
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External Habit Formation and Asset Prices
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GRIN Verlag, GRIN Verlag Jul 2021, 2021
ISBN 10 : 3346385299
ISBN 13 : 9783346385291
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Taschenbuch. Etat : Neu. Neuware -Seminar paper from the year 2021 in the subject Business economics - Investment and Finance, grade: 1,0, University of Frankfurt (Main) (Finanzen), language: English, abstract: This paper aims to explain the countercyclical behavior of the equity risk premium and the stock return volatility by introducing an external habit formation feature in the standard representative-agent consumption-based asset pricing model, in form of the so called ¿catching up with the Joneses¿ preferences. These preferences imply that the relative risk aversion of the agents in the economy is constant over time and varies across the agents, which generates an endogenous wealth process, that in turn creates a countercyclical behavior in the risk premium and the conditional stock return volatility. As the agents with lower risk aversion distribute a greater fraction of their wealth to risky assets, their wealth decreases relatively more in reaction to cyclical downturns, shifting the aggregate wealth towards more risk averse individuals. These more risk averse agents, however, demand a higher compensation for risk, leading to an increase of the aggregate equity risk premium in response to a fall in stock prices. One of the most studied topics in modern economics are the market mechanisms that lead to the determination of asset prices in an economy. The empirical research indicates that there is a link between the historically observed asset prices and macroeconomic developments. One of the most important observations are the countercyclical behavior of the equity risk premium and the stock return volatility, implying that the excess return of common stocks over the risk-free rate during business cycle troughs is significantly higher than during expansions. 20 pp. Englisch. N° de réf. du vendeur 9783346385291
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External Habit Formation and Asset Prices
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Taschenbuch. Etat : Neu. Druck auf Anfrage Neuware - Printed after ordering - Seminar paper from the year 2021 in the subject Business economics - Investment and Finance, grade: 1,0, University of Frankfurt (Main) (Finanzen), language: English, abstract: This paper aims to explain the countercyclical behavior of the equity risk premium and the stock return volatility by introducing an external habit formation feature in the standard representative-agent consumption-based asset pricing model, in form of the so called 'catching up with the Joneses' preferences. These preferences imply that the relative risk aversion of the agents in the economy is constant over time and varies across the agents, which generates an endogenous wealth process, that in turn creates a countercyclical behavior in the risk premium and the conditional stock return volatility. As the agents with lower risk aversion distribute a greater fraction of their wealth to risky assets, their wealth decreases relatively more in reaction to cyclical downturns, shifting the aggregate wealth towards more risk averse individuals. These more risk averse agents, however, demand a higher compensation for risk, leading to an increase of the aggregate equity risk premium in response to a fall in stock prices.One of the most studied topics in modern economics are the market mechanisms that lead to the determination of asset prices in an economy. The empirical research indicates that there is a link between the historically observed asset prices and macroeconomic developments. One of the most important observations are the countercyclical behavior of the equity risk premium and the stock return volatility, implying that the excess return of common stocks over the risk-free rate during business cycle troughs is significantly higher than during expansions. N° de réf. du vendeur 9783346385291
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External Habit Formation and Asset Prices
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Taschenbuch. Etat : Neu. External Habit Formation and Asset Prices | Julian Veil | Taschenbuch | Englisch | 2021 | GRIN Verlag | EAN 9783346385291 | Verantwortliche Person für die EU: preigu GmbH & Co. KG, Lengericher Landstr. 19, 49078 Osnabrück, mail[at]preigu[dot]de | Anbieter: preigu Print on Demand. N° de réf. du vendeur 120363739
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