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The Spirit of Capitalism and Asset Pricing: an Empirical Investigation (Subsequently published in "The B.E. Journal of Macroeconomics (Topics in Macroeconomics)", 2006, Vol. 6, Issue 3, Article 1, 1-23. )

  • Qiang Zhang

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

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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Paper provided by Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo in its series CARF F-Series with number CARF-F-069.

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Length: 34 pages
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:cfi:fseres:cf069
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  1. Heng-fu Zou, 1995. "'The spirit of capitalism' and long-run growth," CEMA Working Papers 94, China Economics and Management Academy, Central University of Finance and Economics.
  2. Gong, Liutang & Zou, Heng-fu, 2002. "Direct preferences for wealth, the risk premium puzzle, growth, and policy effectiveness," Journal of Economic Dynamics and Control, Elsevier, vol. 26(2), pages 247-270, February.
  3. 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.
  4. 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.
  5. Robert E. Lucas Jr., 2003. "Macroeconomic Priorities," American Economic Review, American Economic Association, vol. 93(1), pages 1-14, March.
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