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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26777
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| Title: | Habit Formation and Returns on Bonds and Stocks |
| Authors: | Wachter, Jessica A. |
| Issue Date: | 15-May-2002 |
| Series/Report no.: | S-CDM-01-06 |
| Abstract: | This paper proposes a habit formation model that explains the failure of
the expectations hypothesis documented by Campbell and Shiller (1991)
and Fama and Bliss (1987). The model also produces positive excess
returns on long-term bonds, an upward sloping average yield curve, and
allows for realistic levels of time-variation in the mean of consumption
growth. The model generates a novel empirical prediction: Long lags of
consumption growth predict the short-term interest rate with a negative
sign. This prediction is shown to be strongly supported by the data. |
| URI: | http://hdl.handle.net/2451/26777 |
| Appears in Collections: | Credit & Debt Markets
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