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Comparing Consumption-based Asset Pricing Models: Evidence from Brazil

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  • Flávio Alberti Docha

    (Graduate Program in Economics, Catholic University of Brasilia (PPGE/UCB), Brasilia, DF, Brazil. QS 07 – Lote 01 – EPCT – Brasília/DF - CEP)

  • Carlos Enrique Carrasco-Gutierrez

    (Graduate Program in Economics, Catholic University of Brasilia (PPGE/UCB) and Graduate Program in Public Policy, Catholic University of Brasilia (MPPP/UCB), Brasilia, DF, Brazil)

Abstract

This study offers a novel contribution by systematically comparing five consumption-based asset pricing models using both conditional and unconditional Hansen–Jagannathan distances applied to Brazilian market data. In addition to the traditional CRRA, habit formation and recursive Epstein–Zin preferences, we incorporate alternative specifications such as the saving-CAPM and preferences with labor income, rarely explored in Brazilian empirical finance studies. We estimate the structural parameters of each model and formally evaluate their performance through these distance metrics. Our findings reveal that the recursive utility model provides the best empirical fit among the alternatives considered. Furthermore, we find no evidence of the equity premium puzzle in Brazil throughout the analyzed period. These results contribute to the literature by offering new insights into asset pricing dynamics in emerging markets.

Suggested Citation

  • Flávio Alberti Docha & Carlos Enrique Carrasco-Gutierrez, 2025. "Comparing Consumption-based Asset Pricing Models: Evidence from Brazil," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 20(01), pages 1-33, March.
    • Handle: RePEc:wsi:afexxx:v:20:y:2025:i:01:n:s201049522550006x
    DOI: 10.1142/S201049522550006X
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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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