71 Pages Posted: 1 Feb 2008
Date Written: January 30, 2008
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.
JEL Classification: G12, E21
Suggested Citation: Suggested Citation
Vissing-Jorgensen, Annette and Malloy, Christopher J. and Moskowitz, Tobias J., Long-Run Stockholder Consumption Risk and Asset Returns (January 30, 2008). Harvard Business School Finance Working Paper No. 08-060. Available at SSRN: https://ssrn.com/abstract=1088816 or http://dx.doi.org/10.2139/ssrn.1088816