The Econometric SocietyEdited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262
Econometrica: Nov, 1991, Volume 59, Issue 6
https://doi.org/0012-9682(199111)59:6<1633:APIAEE>2.0.CO;2-A
p. 1633-1657
Fernando Zapatero, Jerome B. Detemple
This paper analyzes asset prices in an exchange economy in which the preferences of the representative agent exhibit habit formation. For a general class of utility indices and endowment processes we (i) characterize the optimal demand for consumption, and (ii) derive closed form solutions for the interest rate and the excess return on risky assets. Our analysis demonstrates that consumption smoothness may obtain even when the interest rate is stochastic. In economies with habit formation the consumption CAPM need not hold when the coefficients of the endowment process are stochastic processes; asset risk premia are larger under mild assumptions. The interest rate depends on the growth in the standard of living. Historical consumption as well as possible future consumption paths are determinants of the current interest rate. The analysis provides new testable restrictions on the behavior of financial assets. A new methodology, Malliavin calculus, is introduced to compute equilibrium asset risk premia.
March 5, 2024
The terms of the Editors of the Econometric Society's three journals end June 30, 2025. We are pleased to announce the incoming Editors and to thank the outgoing Editors for their excellent and continuing service.
Econometrica: Since 2019, Guido Imbens has served as the 14th Editor of Econometrica. On July 1, 2025, Marina Halac will become the Editor.
Quantitative Economics: Stéphane Bonhomme has been the Editor of Quantitative Economics since 2021. His successor will be Bernard Salanié.
Theoretical Economics: The Editor of Theoretical Economics since 2021 has been Simon Board. Taking over for him in July 2025 will be Federico Echenique.
Guido, Stéphane, and Simon have been outstanding Editors. We are grateful to them for the work they have done and will continue to do, and we look forward to further congratulating them next year. We believe Marina, Bernard, and Federico will be outstanding successors and we thank them in advance for their service.
Finally, we are grateful to Larry Samuelson for chairing all three search committees, and we thank the search committee members for their hard and fruitful work:
Econometrica: Christian Dustmann, Lars Hansen, Alessandro Lizzeri, George Mailath, Ariel Pakes, Helene Rey, and Elie Tamer.
QE: Kate Ho, Michael Keane, Felix Kubler, Whitney Newey, and Frank Schorfheide.
TE: Jeff Ely, Johannes Horner, Gilat Levy, Meg Meyer, and Ran Spiegler.
