Expected Stock Returns, Real Business Activity and Consumption Smoothing

THE INTERNATIONAL REVIEW OF FINANCIAL ANALYSIS, Vol. 4 No. 2

Posted: 23 Oct 1996

See all articles by Hany A. Shawky

Hany A. Shawky

State University of New York at Albany - School of Business and Center for Institutional Investment Management

Yajun Peng

SUNY University at Albany

Abstract

This paper develops a general equilibrium asset-pricing model that incorporates both production technology and consumption-smoothing behavior. It shows that technology and productivity shocks, labor input and capital stock are important factors in explaining the behavior of expected asset returns. Empirical tests indicate that, while technology shocks and growth in capital stock are significant factors in explaining asset returns, it is the labor growth variable that appears to provide most of the explanatory power. Furthermore, our results indicate that investors are likely to have high levels of relative risk aversion as well as consumption-smoothing behavior.

JEL Classification: G12

Suggested Citation

Shawky, Hany A. and Peng, Yajun, Expected Stock Returns, Real Business Activity and Consumption Smoothing. THE INTERNATIONAL REVIEW OF FINANCIAL ANALYSIS, Vol. 4 No. 2. Available at SSRN: https://ssrn.com/abstract=7837

Hany A. Shawky (Contact Author)

State University of New York at Albany - School of Business and Center for Institutional Investment Management ( email )

School of Business
1400 Washington Ave.
Albany, NY 12222
United States
518-442-4921 (Phone)
518-442-3944 (Fax)

Yajun Peng

SUNY University at Albany ( email )

1400 Washington Avenue
Building, Room 109
Albany, NY 12222-0001
United States

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