Consumption Risk, Stock Returns, and Economic Cycles

Victoria Atanasov ()
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Victoria Atanasov: Chair of Finance, University of Mannheim, L9 1-2, Mannheim 68161, Germany

Quarterly Journal of Finance (QJF), 2023, vol. 13, issue 01, 1-36

Abstract: We decompose the standard consumption beta into two components that measure consumption risk in high and low economic activity states. Recessionary consumption risk commands a positive and statistically significant compensation, while the market price of expansionary consumption risk is not robust. The two-beta model explains well the cross-section of excess returns on book-to-market-, size-, and momentum-sorted portfolios, and substantially outperforms the traditional one-beta model. The results hold through for various business cycle classifications and alternative consumption measures.

Keywords: Consumption risk; business cycle; cross-section of expected returns (search for similar items in EconPapers)
JEL-codes: E21 G11 G12 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1142/S2010139223500015

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