COMPARATIVE ANALYSIS OF THE LEADING CONSUMPTIONBASED ASSET PRICING MODELS

Stoyan Prodanov and Tsvetan Pavlov ()
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Tsvetan Pavlov: D. A. Tsenov Academy of Economics

Economic Archive, 2016, issue 1, 4

Abstract: The article analyzes in depth the consumption-based asset pricing models, and displays most perspective contemporary trends in the field. A conceptual framework of models has been originally presented linking macroeconomic and financial relationships, and mathematical basis of the classic CCAPM has been developed. The paper also brings out the leading approaches for modification of the basic model, overcoming some of its shortcomings, and analyzes the advantages, disadvantages and the ability of consumption-based modern models to recreate empirical correlations in profitability and the risk of financial assets. The leading conclusion of the article is that there is still no convincing rational consensus model to reproduce adequately the characteristics of financial markets. From an econometric perspective, the closest in this endeavour is the model of long-term risk of Bansal and Yaron (2004) and its modifications.

Keywords: consumption-based asset pricing models; recursive preferences; long-run risk; heterogeneous consumers; equity risk premium (search for similar items in EconPapers)
Date: 2016
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