IDEAS home Printed from
   My bibliography  Save this article

Surplus Consumption Ratio and Expected Stock Returns


  • Imen Ghatassi


Based on the Consumption{Based Asset Pricing Model (C)CAPM with habit formation of Campbell and Cochrane (1999), this paper provides empirical evidence in favour of the importance of habit persistence in asset pricing. Using U.S data, we show that the surplus consumption ratio is a strong predictor of excess returns at long{horizons and that it captures a component of expected returns, not explained by the consumption{wealth ratio. Moreover, this paper shows that the (C) CAPM with habit formation performs far better than the standard (C)CAPM in accounting for the cross{sectional variations in average excess returns on the 25 Fama{French portfolios sorted by size and book{to{market value.

Suggested Citation

  • Imen Ghatassi, 2011. "Surplus Consumption Ratio and Expected Stock Returns," Annals of Economics and Statistics, GENES, issue 103-104, pages 245-271.
  • Handle: RePEc:adr:anecst:y:2011:i:103-104:p:245-271

    Download full text from publisher

    File URL:
    Download Restriction: no

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:adr:anecst:y:2011:i:103-104:p:245-271. See general 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: (Laurent Linnemer). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.