This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Explaining the Poor Performance of Consumption-based Asset Pricing Models

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
John Y. Campbell (Harvard University and NBER,)
John H. Cochrane (University of Chicago, Federal Reserve Bank of Chicago and NBER)

Additional information is available for the following registered author(s):

Abstract

We show that the external habit-formation model economy of Campbell and Cochrane (1999) can explain why the Capital Asset Pricing Model (CAPM) and its extensions are betterapproximate asset pricing models than is the standard onsumption-based model. The model economy produces time-varying expected eturns, tracked by the dividend-price ratio. Portfolio-based models capture some of this variation in state variables, which a state-independent function of consumption cannot capture. Therefore, though the consumption-based model and CAPM are both perfect "conditional" asset pricing models, the portfolio-based models are better approximate "unconditional" asset pricing models. Copyright The American Finance Association 2000.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.blackwell-synergy.com/servlet/useragent?func=synergy&synergyAction=showTOC&journalCode=jofi&volume=55&issue=6&year=2000&part=null
File Format: text/html
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Publisher Info
Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 55 (2000)
Issue (Month): 6 (December)
Pages: 2863-2878
Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Handle: RePEc:bla:jfinan:v:55:y:2000:i:6:p:2863-2878

Contact details of provider:
Web page: http://www.afajof.org/
More information through EDIRC

Order Information:
Web: http://www.afajof.org/membership/join.asp

For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).

Related research
Keywords:

Other versions of this item:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Hansen, Lars Peter & Jagannathan, Ravi, 1997. " Assessing Specification Errors in Stochastic Discount Factor Models," Journal of Finance, American Finance Association, vol. 52(2), pages 557-90, June. [Downloadable!] (restricted)
    Other versions:
  2. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February. [Downloadable!] (restricted)
  3. Breeden, Douglas T., 1979. "An intertemporal asset pricing model with stochastic consumption and investment opportunities," Journal of Financial Economics, Elsevier, vol. 7(3), pages 265-296, September. [Downloadable!] (restricted)
  4. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July. [Downloadable!] (restricted)
  5. Abel, A.B., 1990. "Asset Prices Under Habit Formation And Catching Up With The Joneses," Weiss Center Working Papers 1-90, Wharton School - Weiss Center for International Financial Research.
    Other versions:
  6. Jagannathan, Ravi & Wang, Zhenyu, 1996. " The Conditional CAPM and the Cross-Section of Expected Returns," Journal of Finance, American Finance Association, vol. 51(1), pages 3-53, March. [Downloadable!] (restricted)
    Other versions:
  7. Epstein, Larry G & Zin, Stanley E, 1991. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 263-86, April. [Downloadable!] (restricted)
  8. Hansen, Lars Peter & Singleton, Kenneth J, 1983. "Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 249-65, April. [Downloadable!] (restricted)
  9. Grossman, Sanford J & Shiller, Robert J, 1981. "The Determinants of the Variability of Stock Market Prices," American Economic Review, American Economic Association, vol. 71(2), pages 222-27, May. [Downloadable!] (restricted)
    Other versions:
  10. Mankiw, N Gregory & Shapiro, Matthew D, 1986. "Risk and Return: Consumption Beta versus Market Beta," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 452-59, August. [Downloadable!] (restricted)
    Other versions:
  11. Ferson, Wayne E. & Constantinides, George M., 1991. "Habit persistence and durability in aggregate consumption: Empirical tests," Journal of Financial Economics, Elsevier, vol. 29(2), pages 199-240, October. [Downloadable!] (restricted)
    Other versions:
  12. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November. [Downloadable!] (restricted)
  13. Cochrane, John H, 1996. "A Cross-Sectional Test of an Investment-Based Asset Pricing Model," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 572-621, June. [Downloadable!] (restricted)
  14. Wheatley, Simon, 1988. "Some tests of international equity integration," Journal of Financial Economics, Elsevier, vol. 21(2), pages 177-212, September. [Downloadable!] (restricted)
  15. Fama, Eugene F & French, Kenneth R, 1996. " Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March. [Downloadable!] (restricted)
  16. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-86, September. [Downloadable!] (restricted)
  17. Kandel, Shmuel & Stambaugh, Robert F, 1995. " Portfolio Inefficiency and the Cross-Section of Expected Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 157-84, March. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gomes, Joao F & Kogan, Leonid & Zhang, Lu, 2002. "Equilibrium Cross-Section of Returns," CEPR Discussion Papers 3482, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Balázs Romhányi, 2005. "A learning hypothesis of the term structure of interest rates," Macroeconomics 0503001, EconWPA. [Downloadable!]
  3. Ronald J. Balvers & Dayong Huang, 2005. "Productivity-Based Asset Pricing: Theory and Evidence," Working Papers 05-05, Department of Economics, West Virginia University. [Downloadable!]
    Other versions:
  4. Martin Lettau & Sydney Ludvigson, 1999. "Resurrecting the (C)CAPM: a cross-sectional test when risk premia are time-varying," Staff Reports 93, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  5. Kirill Sossunov, 2002. "A Real Business Cycle Model with Changing Sentiments," Macroeconomics 0210005, EconWPA. [Downloadable!]
  6. Elena Márquez de la Cruz, 2005. "La elasticidad de sustitución intertemporal y el consumo duradero: un análisis para el caso español," Investigaciones Economicas, Fundación SEPI, vol. 29(3), pages 455-481, September. [Downloadable!]
  7. Vance Martin & G.C. Lim & Esfandiar Maasoumi, 2004. "Discounting The Equity Premium Puzzle," Econometric Society 2004 Australasian Meetings 331, Econometric Society. [Downloadable!]
  8. Jessica A. Wachter, 2005. "Solving Models with External Habit," NBER Working Papers 11559, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Willi Semmler & Lars Grüne, 2004. "Asset Pricing with Delayed Consumption Decisions," Computing in Economics and Finance 2004 59, Society for Computational Economics. [Downloadable!]
  10. Hanno Lustig, 2004. "The Cross-Section of Foreign Currency Risk Premia and US Consumption Growth Risk (joint with Adrien Verdelhan)(updated February 2006)," UCLA Economics Online Papers 303, UCLA Department of Economics. [Downloadable!]
  11. Grammig, Joachim & Schrimpf, Andreas, 2006. "Consumption-Based Asset Pricing with a Reference Level: New Evidence from the Cross-Section of Stock Returns," ZEW Discussion Papers 06-32, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  12. Kevin L. Reffett & Frank Schorfheide, 2000. "Evaluating Asset Pricing Implications of DSGE Models," Econometric Society World Congress 2000 Contributed Papers 1630, Econometric Society. [Downloadable!]
  13. Alon Brav & George M. Constantinides & Christopher C. Geczy, 2002. "Asset Pricing with Heterogeneous Consumers and Limited Participation: Empirical Evidence," NBER Working Papers 8822, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  14. Fousseni Chabi-Yo, 2006. "Conditioning Information and Variance Bounds on Pricing Kernels with Higher-Order Moments: Theory and Evidence," Working Papers 06-38, Bank of Canada. [Downloadable!]
  15. Yu Ren & Katsumi Shimotsu, 2007. "Improvement in Finite Sample Properties of the Hansen-Jagannathan Distance Test," Working Papers 1126, Queen's University, Department of Economics. [Downloadable!]
  16. Raymond Kan & Cesare Robotti, 2006. "Specification tests of asset pricing models using excess returns," Working Paper 2006-10, Federal Reserve Bank of Atlanta. [Downloadable!]
  17. William R. Emmons & Frank A. Schmid, 2000. "The Asian crisis and the exposure of large U.S. firms," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 15-34. [Downloadable!]
  18. Hanno Lustig & Adrien Verdelhan, 2005. "The Cross-Section of Currency Risk Premia and US Consumption Growth Risk," NBER Working Papers 11104, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. Michael W. Brandt & David A. Chapman, 2006. "Linear Approximations and Tests of Conditional Pricing Models," NBER Working Papers 12513, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  20. Kris Jacobs & Kevin Q. Wang, 2002. "Idiosyncratic Consumption Risk and the Cross-Section of Asset Returns," CIRANO Working Papers 2002s-11, CIRANO. [Downloadable!]
  21. Vassalou, Maria, 2001. "News Related to Future GDP Growth as a Risk Factor in Equity Returns," CEPR Discussion Papers 3057, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  22. Long Chen & Ralitsa Petkova & Lu Zhang, 2006. "The Expected Value Premium," NBER Working Papers 12183, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  23. Adrian R. Pagan & Kirill A. Sossounov, 2003. "A simple framework for analysing bull and bear markets," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 23-46. [Downloadable!]
Statistics
Access and download statistics

Did you know? You can use IDEAS to provide links to papers and articles in your course syllabus.

This page was last updated on 2008-9-29.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.