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High-Order Consumption Moments and Asset Pricing

Author

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  • Andrei Semenov

    () (Department of Economics, York University)

Abstract

This paper develops an approximate equilibrium factor model for asset returns. In this model, the pricing factors are the cross-moments of return with the cross-sectional moments of individual consumption and the signs of the risk factor coefficients are driven by preference assumptions. Using household-level quarterly consumption data from the U.S. Consumer Expenditure Survey, we find that this model explains the observed equity premium with an economically realistic value of risk aversion when the stochastic discount factor is expressed in terms of the cross-sectional skewness and kurtosis, in addition to the mean and variance, of individual consumption.

Suggested Citation

  • Andrei Semenov, 2003. "High-Order Consumption Moments and Asset Pricing," Working Papers 2003_4, York University, Department of Economics, revised Jan 2005.
  • Handle: RePEc:yca:wpaper:2003_4
    as

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    File URL: http://econ.yorku.ca/%7Easemenov/wp2003-12-1.pdf
    File Function: Revised version, 2005
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    References listed on IDEAS

    as
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    Cited by:

    1. Balduzzi, Pierluigi & Yao, Tong, 2007. "Testing heterogeneous-agent models: an alternative aggregation approach," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 369-412, March.

    More about this item

    Keywords

    asset pricing; equity premium; Euler equation; heterogeneous consumers; incomplete consumption insurance.;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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