Using a consumption-based asset pricing model with infinite-horizon nonlinear habit formation, Campbell and Cochrane (1999) show that low consumption in surplus of habit should forecast high expected returns. This article argues that the finite-horizon linear habit model also implies an inverse relation between expected returns and surplus consumption. This article also presents empirical evidence, which indicates that expected returns on stocks and bonds vary with surplus consumption implied by the habit models. The volatility of returns and the reward to volatility are also related to surplus consumption. However, less than 30% of the predictable variation of expected returns, using standard lagged information variables, is attributed to surplus consumption.

We model the decision to replace durable capital when intensity is variable. Decisions of this type include land-redevelopment decisions where the density of residential or commercial development is a choice variable as well as capital-replacement decisions where capacity is variable. We provide a general yet simple formulation of the problem using an optimal-stopping framework. We characterize the value of the project, the timing of investment, and the intensity of development. We show that intensity interacts in important ways with timing, taxes, and project values. The ability to vary intensity raises hurdle rents and delays development decisions.

Using a consumption-based asset pricing model with infinite-horizon nonlinear habit formation, Campbell and Cochrane (1999) show that low consumption in surplus of habit should forecast high expected returns. This article argues that the finite-horizon linear habit model also implies an inverse relation between expected returns and surplus consumption. This article also presents empirical evidence, which indicates that expected returns on stocks and bonds vary with surplus consumption implied by the habit models. The volatility of returns and the reward to volatility are also related to surplus consumption. However, less than 30% of the predictable variation of expected returns, using standard lagged information variables, is attributed to surplus consumption. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

It is well documented that expected stock returns vary with the day of the week (the Monday or weekend effect). In this article, the authors show that the well-known Monday effect occurs primarily in the last two weeks (fourth and fifth weeks) of the month. In addition, the mean Monday return of the first three weeks of the month is not significantly different from zero. This result holds for most of the subperiods during the 1962-93 sampling period and for various stock return indexes. The monthly effect reported by Robert A. Ariel (1987) and Josef Lakonishok and Seymour Smidt (1988) cannot fully explain this phenomenon.

We use the consumption-based asset pricing model with habit formation to study the predictability and cross-section of returns from the international equity markets. We find that the predictability of returns from many developed countries' equity markets is explained in part by changing prices of risks associated with consumption relative to habit at the world as well as local levels. We also provide an exploratory investigation of the cross-sectional implications of the model under the complete world market integration hypothesis and find that the model performs mildly better than the traditional consumption-based model, the unconditional and conditional world CAPMs and a three-factor international asset pricing model.

It is well documented that expected stock returns vary with the day‐of‐the‐week (the Monday or weekend effect). In this article we show that the well‐known Monday effect occurs primarily in the last two weeks (fourth and fifth weeks) of the month. In addition, the mean Monday return of the first three weeks of the month is not significantly different from zero. This result holds for most of the subperiods during the 1962–1993 sampling period and for various stock return indexes. The monthly effect reported by Ariel (1987) and Lakonishok and Smidt (1988) cannot fully explain this phenomenon.

The authors model the decision to replace durable capital when intensity is variable. Decisions of this type include land-redevelopment decisions where the density of residential or commercial development is a choice variable as well as capital-replacement decisions where capacity is variable. The authors provide a general yet simple formation of the problem using an optimal-stopping framework. They characterize the value of the project, the timing of investment, and the intensity of development. The authors show that intensity interacts in important ways with timing, taxes, and project values. The ability to vary intensity raises hurdle rents and delays development decisions.