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Long-Run Stockholder Consumption Risk and Asset ReturnsAnnette Vissing-JorgensenNorthwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER) Christopher J. MalloyHarvard Business School; National Bureau of Economic Research (NBER) Tobias J. MoskowitzUniversity of Chicago - Booth School of Business January 30, 2008 Harvard Business School Finance Working Paper No. 08-060 Abstract: We provide new evidence on the success of long-run risks in asset pricing by focusing on the risks borne by stockholders. Exploiting micro-level household consumption data, we show that long-run stockholder consumption risk better captures cross-sectional variation in average asset returns than aggregate or non-stockholder consumption risk, and provides more plausible economic magnitudes. We find that risk aversion estimates around 10 can match observed risk premia for the wealthiest stockholders across sets of test assets that include the 25 Fama and French size and value portfolios, the market portfolio, bond portfolios, and the entire cross-section of stocks.
Number of Pages in PDF File: 71 JEL Classification: G12, E21 working papers seriesDate posted: February 1, 2008Suggested CitationContact Information
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