Journal of Banking & Finance Vol. 35 No. 8 2011
Consumption-based CAPM models: International evidence
Abstract
We examine the performance of several types of the consumption-based CAPM (C-CAPM) models to explore if consumption factors matter for determining excess returns across 17 MSCI country indexes. While the classic world C-CAPM does exhibit some power in explaining cross-sectional variations of expected excess returns, the model seems to require an implausibly large coefficient of risk aversion. The more sophisticated models including the heterogeneous C-CAPM, the world surplus consumption and the habit-formation models provide more reasonable estimates and add substantial explanatory power for the variation in the cross section of excess stock returns. Our results suggest that country-specific consumption risk is not fully diversified thus implying that stock returns are related to idiosyncratic consumption risk.
- DOI
- 10.1016/j.jbankfin.2011.01.008
- Volume
- 35
- Issue
- 8
- Pages
- 2148-2157
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib