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Cyclical Asset Returns in the Consumption and Investment Goods Sector

Author

Listed:
  • Burkhard Heer

    (Universitat Augsburg)

  • Alfred Maussner

    (Universitat Augsburg)

  • Bernd Suessmuth

    (Universitat Leipzig)

Abstract

We document the empirical fact that asset prices in the consumption-goods and investment-goods sector behave almost identically in the U.S. economy. In order to derive the cyclical behavior of the equity returns in these two sectors, we consider a two-sector real business cycle model with habit formation, sector-specific growth and adjustment costs of capital. The model is able to replicate the equity premium and the Sharpe values observed empirically, reflects the similarity of the cross-correlation structure between asset returns and aggregate output in the two sectors, and generally succeeds in capturing both the weak predictability of the real risk-free rate and the good predictability of excess returns at the bi-sectoral level. (Copyright: Elsevier)

Suggested Citation

  • Burkhard Heer & Alfred Maussner & Bernd Suessmuth, 2018. "Cyclical Asset Returns in the Consumption and Investment Goods Sector," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 28, pages 51-70, April.
  • Handle: RePEc:red:issued:14-26
    DOI: 10.1016/j.red.2017.07.008
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    References listed on IDEAS

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    1. Burkhard Heer & Alfred Maussner & Bernd Suessmuth, 2018. "Cyclical Asset Returns in the Consumption and Investment Goods Sector," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 28, pages 51-70, April.

    More about this item

    Keywords

    Asset prices; Business Cycles; Equity Premium; Investment Sector; Consumption Sector;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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