Consumption-based modeling of long-horizon returns

Kent D. Daniel and David Marshall

No WP-98-18, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: Numerous studies have documented the failure of consumption-based pricing models to explain observed patterns in stock and bond returns. This failure has sometimes been attributed to frictions, transaction costs or durability. If such frictions are important, they should primarily affect the higher frequency components of asset returns. The long-swings, or lower-frequency comovements should be less affected. Consequently if transaction costs are important, tests of the consumption based asset pricing model which concentrate on lower-frequency components may be more successful.

Keywords: Consumption (Economics); Stock - Prices; Bonds (search for similar items in EconPapers)
Date: 1998
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