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Equity Premiums In Small Open Economy

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  • Douch, Mohamed

Abstract

It is now well known that the RBC models have enjoyed successful results in explaining the dynamics of the business cycle variables but fail to replicate similar interesting stylized facts while studying the behavior of asset prices. One line of progress for solving this shortcoming has been to modify utility to account for habit persistence and to incorporate capital adjustment costs. This paper study a small open economy general equilibrium model along with asset pricing formula based on the lognormality of the disturbance distribution. Our results stipulate that extending models with habit forming preferenses and capital adjustment cost fails to account for a substantial equity premium in a small open economy environment.

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  • Douch, Mohamed, 2004. "Equity Premiums In Small Open Economy," MPRA Paper 14613, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:14613
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    References listed on IDEAS

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    Cited by:

    1. Douch, Mohamed & Bouaddi, Mohammed, 2010. "EQUITY Premium Puzzle in a Data-Rich Environment," MPRA Paper 29440, University Library of Munich, Germany.

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    More about this item

    Keywords

    Asset pricing; Equity premium; habit formation; small open economy JEL classification: G15; G12; C63; F41;
    All these keywords.

    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
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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