Composition of Wealth, Conditioning Information, and the Cross-Section of Stock Returns

Nikolai Roussanov

No 16073, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Value stocks covary with aggregate consumption more than growth stocks during periods when financial wealth is low relative to consumption. However, the conditional value premium does not exhibit such countercyclical behavior. Consequently, a one-factor conditional consumption-based asset pricing model can be rejected without making any arbitrary assumptions on the dynamics of the price of risk or the conditional moments. Empirical evidence is somewhat more consistent with a consumption-based model augmented with an aggregate wealth growth factor, which can be motivated by either recursive preferences or relative wealth concerns.

JEL-codes: C14 G1 G12 (search for similar items in EconPapers)
Date: 2010-06
Note: AP
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Citations: View citations in EconPapers (1)

Published as Roussanov, Nikolai, 2014. "Composition of wealth, conditioning information, and the cross-section of stock returns," Journal of Financial Economics, Elsevier, vol. 111(2), pages 352-380.

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Journal Article: Composition of wealth, conditioning information, and the cross-section of stock returns (2014)
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