Precautionary Volatility and Asset PricesPaper
Precautionary savings motives and production lead to endogenous time-varying volatility. With habit as an amplifier, this channel captures the Shiller volatility puzzle and many other asset price and business cycle facts.
Habit, Production, and the Cross Section of Stock ReturnsPaper
Models of the equity premium should teach us something about the cross section of returns. A model with external habit with heterogeneous firms describes the equity premium puzzles and generates a data-like value premium.