Further international evidence on durable consumption growth and long-run consumption risk

Elena Marquez and Belen Nieto

Quantitative Finance, 2011, vol. 11, issue 2, 195-217

Abstract: New perspectives on consumption-based asset pricing models have recently been argued to provide powerful insights for explaining the cross-sectional variation of expected returns. In this paper, we employ both Spanish and U.S. capital markets data to present further evidence on these new approaches. Relative to previous papers, we are able to compare among alternative model specifications considering the same time period and testing assets. We discuss different versions of the consumption asset pricing model, including preferences with non-separable durable and non-durable consumption, and different frequencies in data, considering the moment at which consumption is measured and including ultimate consumption risk. The results show the relevance of both durable and non-durable long-run consumption risk factors in explaining the Spanish stock market returns. The importance of long-run risk factors is also confirmed with U.S. data.

Keywords: Applied finance; Asset pricing; Capital asset pricing; Consumption-portfolio choice; Consumption; Empirical asset pricing; Intertemporal portfolio choice; Utility functions (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1080/14697680903067120

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