Asset pricing with long-run durable expenditure risk

Huan Li

Finance Research Letters, 2020, vol. 32, issue C

Abstract: Consumption capital asset pricing models (CCAPMs) have been the center of interest in the vast macrofinance literature. We suggest using fresh long-run durable expenditure growth data to study CCAPM and demonstrate that the durable expenditure risk in the long-run can explain the cross-sectional return of the U.S. stock market. Using durable expenditures measured over the long-run, we can obtain a reasonable risk-aversion parameter and estimate a smaller value than that obtained by many recently proposed novel models. Regarding multiple-period returns, durable expenditure growth over 14 quarters has an explanatory power of 70% and a risk aversion of 14.

Keywords: Equity premium puzzle; Cross-sectional return; CCPAM (search for similar items in EconPapers)
JEL-codes: E21 G11 G12 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:32:y:2020:i:c:s1544612318306597

DOI: 10.1016/j.frl.2019.04.032

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