Habit Formation, Incomplete Markets, and the Significance of Regional Risk for Expected Returns

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George M. Korniotis;
(2008)
  • Journal: The Review of Financial Studies,volume 21,issue 5 9,pages2,139-2,172
  • Related identifiers: doi: 10.1093/rfs/hhn074

This paper introduces a consumption-based capital asset pricing model (CCAPM) that combines undiversifiable income shocks and external habit formation. Using US state-level data, the paper provides realistic estimates for preference parameters when the external habit of... View more
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