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

Ekaterini Panopoulou () and Sarantis Kalyvitis ()

No 1216, DEOS Working Papers from Athens University of Economics and Business

Abstract: 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.

Keywords: C-CAPM; consumption risk; frequency domain; equity premium (search for similar items in EconPapers)
JEL-codes: G11 G12 C13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-upt
Date: 2012-06-28
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Forthcoming in Studies in Nonlinear Dynamics & Econometrics

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http://wpa.deos.aueb.gr/docs/Kalyvitis_Panopoulou_SNLDE.pdf First version (application/pdf)

Related works:
Journal Article: Estimating C-CAPM and the equity premium over the frequency domain (2013) Downloads
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