Asset Pricing with Countercyclical Household Consumption Risk

Anisha Ghosh and George Constantinides
Additional contact information
Anisha Ghosh: Carnegie Mellon University

No 185, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: We present evidence that shocks to household consumption growth are negatively skewed, persistent, countercyclical, and play a major role in driving asset prices. We construct a parsimonious model where heterogeneous households have recursive preferences and a single state variable drives the conditional cross-sectional moments of household consumption growth. The estimated model fits well the cross-sectional moments of household consumption growth and the unconditional moments of the risk-free rate, equity premium, market price-dividend ratio, and aggregate dividend and consumption growth. Consistent with empirical evidence, the model implied risk-free rate and price-dividend ratio are pro cyclical while the market return has countercyclical mean and variance.

Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2015/paper_185.pdf (application/pdf)

Related works:
Journal Article: Asset Pricing with Countercyclical Household Consumption Risk (2017)
Working Paper: Asset Pricing with Countercyclical Household Consumption Risk (2014)
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:red:sed015:185

Access Statistics for this paper

More papers in 2015 Meeting Papers from Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().