Research Seminar by Marjorie Flavin (University of California, San Diego)
Speaker: Marjorie Flavin (University of California, San Diego)
Theme: «The Housing CCAPM with Adjustment Costsand Heterogeneous Agents»Venue: Shabolovka st., 26, room 3211
Abstract: We explicitly model housing consumption in a consumption based CAPM framework with heterogeneous agents. Due to nonconvex adjustment costs associated with housing consumption, the adjustment of housing is infrequent. For most periods, the household maximizes over nondurable consumption conditional on their current level of housing consumption. When the intratemporal substitutability of the two goods is limited, we show that, theoretically, the stochastic discount factor derived from a housing CCAPM is more volatile and more countercyclical than a SDF from a standard version of the model (without housing). Empirically, we show that housing CCAPM performs better than a standard CCAPM in terms of both explaining level of equity premium with moderate level of curvature of the utility function and explaining more of the variation of cross-sectional asset returns.