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Consumption Volatility Risk

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  • OLIVER BOGUTH
  • LARS‐ALEXANDER KUEHN

Abstract

We show that time variation in macroeconomic uncertainty affects asset prices. Consumption volatility is a negatively priced source of risk for a wide variety of test portfolios. At the firm level, exposure to consumption volatility risk predicts future returns, generating a spread across quintile portfolios in excess of 7% annually. This premium is explained by cross‐sectional differences in the sensitivity of dividend volatility to consumption volatility. Stocks with volatile cash flows in uncertain aggregate times require higher expected returns.

Suggested Citation

  • Oliver Boguth & Lars‐Alexander Kuehn, 2013. "Consumption Volatility Risk," Journal of Finance, American Finance Association, vol. 68(6), pages 2589-2615, December.
    • Handle: RePEc:bla:jfinan:v:68:y:2013:i:6:p:2589-2615
    DOI: 10.1111/jofi.12058
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