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Quantile Consumption-Capital Asset Pricing

Author

Listed:
  • Ramos, Sofía B.
  • Taamouti, Abderrahim
  • Lopes Moreira Da Veiga, María Helena
  • Wang, Chih-Wei

Abstract

The Consumption-Capital Asset Pricing Model is a statement about the mean of asset returns anddoes not provide any information on the returns' quantiles. Using quantile maximization decisiontheory, this paper considers a quantile-based Euler equation that states that the asset price is afunction of the quantiles of the payoff, consumption growth, stochastic discount factor and riskaversion. Assuming that the consumption growth rate is log-elliptically distributed, we show thatreturns' quantiles are non-monotone functions of the consumption growth volatility. Using data fromthe United States and United Kingdom, empirical evidence validates our theoretical results and showsthat this volatility is a driving factor of the returns' distribution.

Suggested Citation

  • Ramos, Sofía B. & Taamouti, Abderrahim & Lopes Moreira Da Veiga, María Helena & Wang, Chih-Wei, 2020. "Quantile Consumption-Capital Asset Pricing," DES - Working Papers. Statistics and Econometrics. WS 30332, Universidad Carlos III de Madrid. Departamento de Estadística.
    • Handle: RePEc:cte:wsrepe:30332
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    Keywords

    Asset Pricing;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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