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Estimating the Consumption-Capital Asset Pricing Model without Consumption Data: Evidence from Denmark

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    Abstract

    This paper evaluates the ability of the multifactor model of Campbell (1993, 1996) to explain time-series and cross-sectional patterns of Danish stock and bond returns. The model is obtained by substituting consumption out of the intertemporal budget constraint of the representative agent in the traditional consumption-based capital asset pricing model (C-CAPM). This enables the model to be estimated without the use of consumption data. Estimation of the model results in reasonable preference parameter estimates. Unlike previous research based on this model, the restrictions implied by both the conditional and unconditional model are generally not rejected, and Hansen and Jagannathan’s (1997) specification error measures generally imply small pricing errors.

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    Bibliographic Info

    Paper provided by University of Aarhus, Aarhus School of Business, Department of Business Studies in its series Finance Working Papers with number 04-2.

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    Length: 50 pages
    Date of creation: 27 May 2004
    Date of revision:
    Handle: RePEc:hhb:aarfin:2004_002

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    Postal: The Aarhus School of Business, Fuglesangs Allé 4, DK-8210 Aarhus V, Denmark
    Fax: + 45 86 15 19 43
    Web page: http://www.asb.dk/about/departments/bs.aspx
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    Keywords: Intertemporal asset pricing; VAR model; Hansen-Jagannathan specification error;

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