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Specification tests of habit formation

By: Contributor(s): Material type: TextTextSeries: Applied Economics Letters ; Volume , number ,New York Taylor & Francis 2013Content type:
  • text
Media type:
  • unmediated
Carrier type:
  • volume
Subject(s): Online resources: Summary: Campbell and Cochrane (1999) propose the habit formation model to explain the equity premium puzzle. They assume that an agent’s consumption is affected by habit and describe how habit adjusts to the history of consumption. We use the simulated moment method to test these two specifications. Empirically, we find that habit plays an important role in an agent’s consumption choice, however not in the way Campbell and Cochrane (1999) specify.
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Item type Current library Call number Vol info Status Notes Date due Barcode
Journal Article Journal Article Main Library - Special Collections HB1.A666 APP (Browse shelf(Opens below)) Vol.20 , No.16 - 18 (Dec 2013) Not for loan For In House Use Only

Campbell and Cochrane (1999) propose the habit formation model to explain the equity premium puzzle. They assume that an agent’s consumption is affected by habit and describe how habit adjusts to the history of consumption. We use the simulated moment method to test these two specifications. Empirically, we find that habit plays an important role in an agent’s consumption choice, however not in the way Campbell and Cochrane (1999) specify.

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