Asset Pricing with Garbage
New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)
April 20, 2010
Journal of Finance, Forthcoming
A new measure of consumption, garbage, is more volatile and more correlated with stocks than the canonical 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.
Number of Pages in PDF File: 45
Keywords: consumption-based asset pricing, equity premium, risk aversion
JEL Classification: E44, G12
Date posted: February 24, 2009 ; Last revised: January 10, 2014
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