I introduce an external habit for each consumption good, known as deep habits, into an otherwise standard international equilibrium model with multiple consumption goods and multiple countries. I show that deep habits coupled with consumption home bias account for a wide range of asset pricing...

There is a weak correlation between economic fundamentals and asset returns and disagreement about future asset prices is not spanned by disagreement about economic fundamentals. Both facts are inconsistent with leading asset pricing models. To address these puzzles, we develop an overlapping...