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An International Capm With Consumption Externalities And Non-Financial Wealth

  • JUAN PEDRO GOMEZ

    ()

    (Instituto de Empresa)

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    We study an international asset pricing model where agents have preferences defined over their own consumption as well as the contemporaneous average or per capita consumption in their own country. These have been termed "keeping up with the Joneses" preferences. In the presence of non-diversifiable non-financial wealth, the model predicts that portfolio holdings of the representative investor differ across countries. In equilibrium we show that this gives rise to a multifactor CAPM where, together with the world market price of risk, there exists country-specific negative prices of risk associated with deviations from the country´s average consumption.

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    File URL: http://latienda.ie.edu/working_papers_economia/WP05-08.pdf
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    Paper provided by Instituto de Empresa, Area of Economic Environment in its series Working Papers Economia with number wp05-08.

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    Length: 36 pages
    Date of creation: Feb 2005
    Date of revision:
    Handle: RePEc:emp:wpaper:wp05-08
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