This paper presents an empirical evaluation of recently proposed asset pricing models which extend the standard preference specification by a reference level of consumption. We motivate an alternative model that accounts for the return on human capital as a determinant of the reference level. Our analysis is based on a broad cross-section of test assets, which provides a level playing field for a comparison to established benchmark models. The reference level model extended by human capital does a good job in explaining size and value premia. Estimated on Fama and French's size and book-to-market sorted portfolios, it outperforms Lettau and Ludvigson's scaled CCAPM and delivers average pricing errors comparable to the Fama-French three-factor model.
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Volume (Year): 18 (2009) Issue (Month): 3 (August) Pages: 113-123 Download reference. The following formats are available: HTML
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