CIRJE-F-429 "Asset Pricing With Multiplicative Habit and Power-Expo Preferences"
Author Name Smith, William T. and Qiang Zhang
Date June 2006
Full Paper PDF file@
Remarks Subsequently published in Economics Letters, 2007, 94(3), 319-325.
Abstract

Multiplicative habit introduces an additional consumption risk as a determinant of equity premium, and allows time preference and habit strength, in addition to risk aversion, to affect "price of risk". A model combining multiplicative habit and power-expo preferences cannot be rejected.