C-CAPM and the Cross-Section of Sharpe Ratios

Paul Söderlind

No 18, SIFR Research Report Series from Institute for Financial Research

Abstract: This paper studies if the consumption-based asset pricing model can explain the cross-section of Sharpe ratios. The CRRA model and several extensions (habit persistence, recursive utility and idiosyncratic shocks) all imply that the Sharpe ratio is linearly increasing in the asset's correlation with aggregate consumption growth. Results from quarterly data on 40 US portfolios (1947-2001) and 10 international portfolios (1957/1971-2001) suggest that both the unconditional and conditional C-CAPM have serious problems: there is a great deal of variation in Sharpe ratios, but most portfolios have relatively similar and low correlations with aggregate consumption growth.

Keywords: Cosumption-based asset pricing; habit persistence; recursive utility; idiosyncratic risk; multivariate GARCH (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2003-08-15
New Economics Papers: this item is included in nep-cfn, nep-fin and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sifr.org/PDFs/sifr-wp18.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
Working Paper: C-CAPM and the Cross-Section of Sharpe Ratios (2003)
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:hhs:sifrwp:0018

Access Statistics for this paper

More papers in SIFR Research Report Series from Institute for Financial Research Institute for Financial Research Drottninggatan 89, SE-113 60 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Anki Helmer ().