Don't break the habit: Structural stability tests of consumption asset pricing models in the UK

Stuart Hyde, Mohamed Sherif

    Research output: Contribution to journalArticle

    6 Citations (Scopus)

    Abstract

    This paper investigates the structural stability of four alternative consumption based asset pricing models, the traditional power utility consumption based capital asset pricing model (C-CAPM), the recursive preferences model proposed by Epstein and Zin (1989, 1991), and two habit formation specifications, the form proposed by Abel (1990) and the model of Campbell and Cochrane (1999), using the tests of Hall and Sen (1999). The ability of the models to price stocks and stocks and a short-term interest rate (i.e., the equity premium) is assessed. Evidence is found supportive of both the habit formation specifications and the traditional C-CAPM. The preferred specification based on parameter estimates and structural stability is that of Campbell and Cochrane. © 2005 Taylor & Francis Group Ltd.

    Original languageEnglish
    Pages (from-to)289-296
    Number of pages8
    JournalApplied Economics Letters
    Volume12
    Issue number5
    DOIs
    Publication statusPublished - 15 Apr 2005

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