Composition of wealth, conditioning information, and the cross-section of stock returns

Nikolai Roussanov

Journal of Financial Economics, 2014, vol. 111, issue 2, 352-380

Abstract: Value stocks covary with aggregate consumption more than growth stocks during periods when financial wealth is low relative to consumption. However, the conditional value premium does not exhibit such countercyclical behavior. Consequently, a one-factor conditional consumption-based asset pricing model can be rejected without making any arbitrary assumptions on the dynamics of the price of risk or the conditional moments. Empirical evidence is somewhat more consistent with a consumption-based model augmented with an aggregate wealth growth factor, which can be motivated by either recursive preferences or relative wealth concerns.

Keywords: Linear factor models; Conditioning information; Nonparametric estimation; Value premium; Relative wealth concerns (search for similar items in EconPapers)
JEL-codes: C14 G12 G17 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X13002729
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Composition of Wealth, Conditioning Information, and the Cross-Section of Stock Returns (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:111:y:2014:i:2:p:352-380

DOI: 10.1016/j.jfineco.2013.10.010

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().