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The Spirit of Capitalism and Asset Pricing: an Empirical Investigation

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  • Qiang Zhang

    (Department of Economics, Fogelman College of Business & Economics, University of Memphis)

Abstract

We extend and test two models of aggregate asset pricing that feature status-seeking through accumulation of not only financial assets but also human capital. We use weak-identification robust tests to confront these models with U.S. data. Contrary to previous results, we find that the spirit of capitalism hypothesis, modeled as either direct preference for wealth or pursuit of relative wealth status, is rejected in the aggregate data. Therefore, adding status motive alone to an otherwise standard model may not be sufficient to resolve the equity premium puzzle.

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File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2006/2006cf428.pdf
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Bibliographic Info

Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-428.

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Length: 34pages
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:tky:fseres:2006cf428

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  1. Lettau, Martin & Ludvigson, Sydney, 1999. "Consumption, Aggregate Wealth and Expected Stock Returns," CEPR Discussion Papers 2223, C.E.P.R. Discussion Papers.
  2. Martin Lettau, 2000. "Cross-variable restrictions in Euler equations and risk premia," Applied Economics Letters, Taylor & Francis Journals, vol. 7(2), pages 99-101.
  3. Liutang Gong & Heng-fu Zou, 2001. "Direct preferences for wealth, the risk premium puzzle, growth, and policy effectiveness," CEMA Working Papers 53, China Economics and Management Academy, Central University of Finance and Economics.
  4. Martin Lettau & Sydney Ludvigson, 2003. "Understanding Trend and Cycle in Asset Values: Reevaluating the Wealth Effect on Consumption," NBER Working Papers 9848, National Bureau of Economic Research, Inc.
  5. Ravi Jagannathan & Zhenyu Wang, 1996. "The conditional CAPM and the cross-section of expected returns," Staff Report 208, Federal Reserve Bank of Minneapolis.
  6. Zou, Heng-fu, 1994. "'The spirit of capitalism' and long-run growth," European Journal of Political Economy, Elsevier, vol. 10(2), pages 279-293, July.
  7. Lars Peter Hansen & Ravi Jagannathan, 1990. "Implications of Security Market Data for Models of Dynamic Economies," NBER Technical Working Papers 0089, National Bureau of Economic Research, Inc.
  8. Smith, William T, 2001. "How Does the Spirit of Capitalism Affect Stock Market Prices?," Review of Financial Studies, Society for Financial Studies, vol. 14(4), pages 1215-32.
  9. Zhang, Qiang, 2006. "Human Capital, Weak Identification, and Asset Pricing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 873-899, June.
  10. Epstein, Larry G & Zin, Stanley E, 1991. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 263-86, April.
  11. Jeremy Rudd & Karl Whelan, 2006. "Empirical Proxies for the Consumption-Wealth Ratio," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(1), pages 34-51, January.
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Cited by:
  1. Dreyer, Johannes K. & Schneider, Johannes & Smith, William T., 2013. "Saving-based asset-pricing," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3704-3715.
  2. Smoluk, H.J. & Voyer, John, 2014. "The spirit of capitalism among the income classes," Review of Financial Economics, Elsevier, vol. 23(1), pages 1-9.

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