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Resuscitating the C-CAPM: empirical evidence from France and Germany Author info | Abstract | Publisher info | Download info | Related research | Statistics Stuart Hyde (Manchester Business School, University of Manchester, U.K.)
Keith Cuthbertson (CASS Business School, 106 Bunhill Row, London EC1Y 8TZ, U.K.)
Dirk Nitzsche (CASS Business School, 106 Bunhill Row, London EC1Y 8TZ, U.K.)
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In this paper we analyse whether the consumption based capital asset pricing model is consistent with asset return data from the French and German stock markets. We evaluate the performance of the C-CAPM by applying the non-parametric methodology of Hansen and Jagannathan and adopting five alternative specifications of utility. In addition to standard power utility we adopt the recursive preferences model proposed by Epstein and Zin. We also consider both internal and external habit formation (persistence) using the models proposed by Constantinides, Abel and Campbell and Cochrane. We evaluate our findings using the tests of Burnside and Hansen and Jagannathan. We find that the majority of models produce stochastic discount factors consistent with the data. However, high degrees of risk aversion are implied for the models to be consistent. Incorporating habit formation only partially reduces the implied levels of risk aversion. Copyright © 2005 John Wiley & Sons, Ltd.
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Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics .
Volume (Year): 10 (2005)
Issue (Month): 4 ()
Pages: 337-357
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Handle: RePEc:ijf:ijfiec:v:10:y:2005:i:4:p:337-357Contact details of provider: Web page: http://www.interscience.wiley.com/jpages/1076-9307/
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Keywords: References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.:
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Hansen, Lars Peter & Heaton, John & Luttmer, Erzo G J, 1995.
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Weiss Center Working Papers
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Other versions:
Andrew B. Abel, .
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Rodney L. White Center for Financial Research Working Papers
1-90, Wharton School Rodney L. White Center for Financial Research.
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Stuart Hyde & Mohamed Sherif, 2005.
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Manchester School ,
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Constantinides, George M, 1990.
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[Downloadable!] (restricted)
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references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
Stig V. Møller, 2007.
"Habit persistence: Explaining cross sectional variation in returns and time-varying expected returns ,"
CREATES Research Papers
2007-07, School of Economics and Management, University of Aarhus.
[Downloadable!]
Tom Engsted & Stuart Hyde & Stig V. Møller, 2007.
"Habit Formation, Surplus Consumption and Return Predictability: International Evidence ,"
CREATES Research Papers
2007-31, School of Economics and Management, University of Aarhus.
[Downloadable!]
Tom Engsted & Stig V. Møller, 2008.
"An iterated GMM procedure for estimating the Campbell-Cochrane habit formation model, with an application to Danish stock and bond returns ,"
CREATES Research Papers
2008-12, School of Economics and Management, University of Aarhus.
[Downloadable!]
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