EconPapers    
Economics at your fingertips  
 

Seeing the Unobservable from the Invisible: The Role of CO2 in Measuring Consumption Risk

Zhuo Chen and Andrea Lu

Review of Finance, 2018, vol. 22, issue 3, 977-1009

Abstract: In contrast to past studies that assume service flow of durable goods consumption to be a constant fraction of the stock, we study a consumption-based asset pricing model featuring time-varying utilization of durable goods. We propose an innovative measure of the unobserved usage of durable goods from carbon dioxide emissions. We find that the time-varying utilization of durable goods is a valid pricing factor. Our model exhibits a stronger cross-sectional pricing power than several consumption-based capital asset pricing models, including Yogo’s (2006) durable goods model. Finally, our model mitigates the joint risk premium and implied risk-free rate puzzle.

Keywords: Consumption-based capital asset pricing model (CCAPM); Durable goods service flow; Carbon dioxide emissions (search for similar items in EconPapers)
Date: 2018
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1093/rof/rfx027 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
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:oup:revfin:v:22:y:2018:i:3:p:977-1009.

Ordering information: This journal article can be ordered from
http://www.oup.co.uk/journals

Access Statistics for this article

Review of Finance is currently edited by Josef ZechnerEditor-Name: Marco Pagano

More articles in Review of Finance from European Finance Association Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().

 
Page updated 2019-11-07
Handle: RePEc:oup:revfin:v:22:y:2018:i:3:p:977-1009.