IDEAS home Printed from
   My bibliography  Save this paper

Estimating C-CAPM and the Equity Premium over the Frequency Domain


  • Ekaterini Panopoulou

    () (University of Piraeus)

  • Sarantis Kalyvitis

    () (DIEES, AUEB)


In 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.

Suggested Citation

  • Ekaterini Panopoulou & Sarantis Kalyvitis, 2012. "Estimating C-CAPM and the Equity Premium over the Frequency Domain," DEOS Working Papers 1216, Athens University of Economics and Business.
  • Handle: RePEc:aue:wpaper:1216

    Download full text from publisher

    File URL:
    File Function: First version
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    2. Nicolae B. Gârleanu & Stavros Panageas & Jianfeng Yu, 2009. "Technological Growth and Asset Pricing," NBER Working Papers 15340, National Bureau of Economic Research, Inc.
    3. Martin Lettau & Sydney Ludvigson, 2001. "Resurrecting the (C)CAPM: A Cross-Sectional Test When Risk Premia Are Time-Varying," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1238-1287, December.
    4. Lynch, Anthony W, 1996. " Decision Frequency and Synchronization across Agents: Implications for Aggregate Consumption and Equity Return," Journal of Finance, American Finance Association, vol. 51(4), pages 1479-1497, September.
    5. Grossman, Sanford J & Laroque, Guy, 1990. "Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods," Econometrica, Econometric Society, vol. 58(1), pages 25-51, January.
    6. Rajnish Mehra, 2003. "The Equity Premium: Why is it a Puzzle?," NBER Working Papers 9512, National Bureau of Economic Research, Inc.
    7. Kamara, Avraham, 1997. " The Relation between Default-Free Interest Rates and Expected Economic Growth Is Stronger Than You Think," Journal of Finance, American Finance Association, vol. 52(4), pages 1681-1694, September.
    8. Cochrane, John H., 2005. "Financial Markets and the Real Economy," Foundations and Trends(R) in Finance, now publishers, vol. 1(1), pages 1-101, July.
    9. Otrok, Christopher, 2001. "Spectral Welfare Cost Functions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(2), pages 345-367, May.
    10. Jonathan A. Parker & Christian Julliard, 2003. "Consumption Risk and Cross-Sectional Returns," NBER Working Papers 9538, National Bureau of Economic Research, Inc.
    11. Berkowitz, Jeremy, 2001. "Generalized spectral estimation of the consumption-based asset pricing model," Journal of Econometrics, Elsevier, vol. 104(2), pages 269-288, September.
    Full references (including those not matched with items on IDEAS)

    More about this item


    C-CAPM; consumption risk; frequency domain; equity premium;

    JEL classification:

    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:


    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:aue:wpaper:1216. 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: (Ekaterini Glynou). 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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.