Journal of Finance Vol. 43 No. 1 1988
An Alternative Testable Form of the Consumption CAPM
Abstract
This paper develops a consumption‐oriented model of asset prices in a multigood economy that is, in principle, testable even when aggregate consumption of goods and their market prices are only partially observable. Previous studies show that, when there are m consumption goods, equilibrium expected excess returns on securities are functions of their covariances with variables—aggregate consumption expenditure and market prices of consumption goods. Without making any further assumptions, the present model shows that a similar equilibrium relationship can be expressed in terms of covariances of asset returns with the following variables: market prices of k consumption goods and aggregate consumption of goods. Because the author's result provides researchers with some flexibility in choosing the set of variables that measure riskiness of securities, it should lead to more powerful tests of the model.
- DOI
- 10.1111/j.1540-6261.1988.tb02588.x
- Volume
- 43
- Issue
- 1
- Pages
- 61-70
- Language
- en
- Sources
- openalex crossref