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Asset Pricing with a Reference Level of Consumption: New Evidence from the Cross-Section of Stock Returns

Andreas Schrimpf and Joachim Grammig ()

No 06-032 [rev.], ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: This paper presents an empirical evaluation of recently proposed asset pricing models which extend the standard preference specification by a reference level of consumption. We motivate an alternative model that accounts for the return on human capital as a determinant of the reference level. Our analysis is based on a broad cross-section of test assets which provides a level playing field for a comparison to established benchmark models. The human capital extended reference level model does a good job in explaining size and value premia. Estimated on Fama and French's size and book-to-market sorted portfolios it outperforms Lettau and Ludvigson's scaled CCAPM and delivers average pricing errors comparable to the Fama-French three-factor model.

Keywords: Consumption-Based Asset Pricing; Cross-Section of Stock Returns; Reference Level (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2007
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https://www.econstor.eu/bitstream/10419/24703/1/dp06032.pdf (application/pdf)

Related works:
Journal Article: Asset pricing with a reference level of consumption: New evidence from the cross-section of stock returns (2009) Downloads
Working Paper: Asset ppricing with a reference level of consumption: New evidence from the cross-section of stock returns (2009) Downloads
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