Asset Pricing with Garbage
Alexi Savov
University of Chicago Booth School of Business
February 17, 2009
Abstract:
A new measure of consumption -- garbage -- is more volatile and more correlated with stocks than the standard measure, NIPA consumption expenditure. A garbage-based CCAPM matches the U.S. equity premium with relative risk aversion of 17 versus 81 and evades the joint equity premium-risk-free rate puzzle. These results carry through to European data. In a cross section of size, value, and industry portfolios, garbage growth is priced and drives out NIPA expenditure growth.
Keywords: consumption-based asset pricing, equity premium, risk aversion
JEL Classifications: E44, G12
Working Paper Series
Suggested Citation
Savov, Alexi, Asset Pricing with Garbage (February 17, 2009). Available at SSRN: http://ssrn.com/abstract=1345470
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