Estimating C-CAPM and the Equity Premium over the Frequency Domain
AbstractIn this paper we estimate the single-factor Consumption Capital Asset Pricing Model (C-CAPM) over the frequency domain. We modify the standard two-step methodology (Fama and French, 1992) to account for the spectral properties of consumption risk and we find that its lower frequencies explain up to 98% of the cross-sectional variation of expected returns and that the equity premium puzzle is eliminated. These results are robust to the definitions of the variables, the sample span and the set of portfolios utilized, and the maturity of interest rates.
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Bibliographic InfoPaper provided by Athens University of Economics and Business in its series DEOS Working Papers with number 1216.
Date of creation: 28 Jun 2012
Date of revision:
Publication status: Forthcoming in Studies in Nonlinear Dynamics & Econometrics
C-CAPM; consumption risk; frequency domain; equity premium;
Other versions of this item:
- Kalyvitis Sarantis & Panopoulou Ekaterini, 2013. "Estimating C-CAPM and the equity premium over the frequency domain," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, De Gruyter, vol. 17(5), pages 551-571, December.
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
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