Cross-sectional consumption-based asset pricing: The importance of consumption timing and the inclusion of severe crises
AbstractBy using a beginning-of-period timing convention for consumption, and by including the Great Depression years in the analysis, we show that on annual data from 1926 to 2009 a standard contemporaneous consumption risk model goes a long way in explaining the size and value premiums in cross-sectional data that include both the Fama-French portfolios and industry portfolios. A long run consumption risk variant of the model also produces a high cross-sectional fit. In addition, the equity premium puzzle is significantly reduced in the models. We argue that in evaluating consumption based models, it is important to include both boom and crises periods, i.e. periods with severe consumption declines as well as periods with strong growth, and that the standard post-war data sample may not be well suited in this respect.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2011-07.
Date of creation: 03 Feb 2011
Date of revision:
Contact details of provider:
Web page: http://www.econ.au.dk/afn/
Consumption-based model; long-run risk; the Great Depression; beginning-of-period timing convention; equity premium puzzle; Fama-French and industry portfolios; size and value premiums; GMM; cross-sectional R2.;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-19 (All new papers)
- NEP-CIS-2011-02-19 (Confederation of Independent States)
- NEP-DGE-2011-02-19 (Dynamic General Equilibrium)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.