Abstract
The book analyzes various assets markets using advanced econometric methodology from the perspective of asset pricing theory. The focus is on markets for stocks, bonds, and real estate, which has proved to be important especially in the last year or so, when a collapse of the housing bubble triggered the global recession.
The contribution in the terms of theory includes a description of the role of habit persistence and durability in mean reversion to generate predictability of asset returns observed in the US and elsewhere. The present work also demonstrates the importance of including housing returns in asset pricing models.
However, the main contribution is in the field of econometric modeling in financial economics. Namely, the authors analyze properties of the Generalized Method of Moments (GMM), introduce new tests for latent factors, generalize the existing variance ratio test and estimate a tri-variate Markov model.