Review of Finance Vol. 19 No. 1 2015
Consumption Volatility and the Cross-Section of Stock Returns
Abstract
I derive and test multi-horizon implications of a consumption-based equilibrium model featuring fluctuating expected growth and volatility. My setup allows consumption dynamics to be estimated jointly with covariance risk prices in a single-stage generalized method of moment, and then inferences from asset pricing tests reflect uncertainty coming from factor estimation. I show that changes in consumption volatility are the key driver for explaining major asset pricing anomalies across risk horizons, while other factors play no or a secondary role. Value stocks and past long-term losers pay higher average returns mainly because they covary more negatively with these changes than what other stocks do.
- DOI
- 10.1093/rof/rft058
- Volume
- 19
- Issue
- 1
- Pages
- 367-405
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref