Nonsubstitutable Consumption Growth Risk

Robert F. Dittmar (), Christian Schlag () and Julian Thimme ()
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Robert F. Dittmar: Jones School of Business, Rice University, Houston, Texas 77006
Christian Schlag: Goethe University Frankfurt and Leibniz Institute for Financial Research SAFE, 60323 Frankfurt, Germany
Julian Thimme: Karlsruhe Institute of Technology, 76131 Karlsruhe, Germany

Management Science, 2025, vol. 71, issue 6, 4847-4876

Abstract: Standard applications of the consumption-based asset pricing model assume that goods and services within the nondurable consumption bundle are substitutes. We estimate substitution elasticities between different consumption bundles and show that households cannot substitute energy consumption by consumption of other nondurables. As a consequence, energy consumption affects the pricing function as a separate factor. Variation in energy consumption betas explains a large part of the premia related to value, investment, and operating profitability. For example, value stocks are typically more energy intensive than growth stocks and thus riskier, because they suffer more from the oil supply shocks that also affect households.

Keywords: asset pricing; consumption; cross-section of stock returns (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:71:y:2025:i:6:p:4847-4876

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