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Asset pricing with data revisions

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  • Borup, Daniel
  • Schütte, Erik Christian Montes

Abstract

We document two important asset pricing implications of the data release process of US consumption growth. First, initial releases are more suitable for asset pricing than final revised releases. This is because most revisions smooth out essential short-term consumption growth fluctuations. Second, first revisions incorporate novel information and their magnitude is strongly linked to consumption growth ambiguity. We formulate a novel consumption-based model, the Revised CCAPM, which incorporates these two effects using vintage data. It explains a striking 75% of the cross-sectional variation in average returns on 25 size-value portfolios. These results support the concept of state-dependent ambiguity attitudes.

Suggested Citation

  • Borup, Daniel & Schütte, Erik Christian Montes, 2022. "Asset pricing with data revisions," Journal of Financial Markets, Elsevier, vol. 59(PB).
    • Handle: RePEc:eee:finmar:v:59:y:2022:i:pb:s1386418121000021
    DOI: 10.1016/j.finmar.2021.100620
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    More about this item

    Keywords

    Data revisions; Vintage data; Consumption-based capital asset pricing model; NIPA personal consumption expenditures; Ambiguity;
    All these keywords.

    JEL classification:

    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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