45 Pages Posted: 24 Feb 2009 Last revised: 10 Jan 2014
Date Written: April 20, 2010
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.
Keywords: consumption-based asset pricing, equity premium, risk aversion
JEL Classification: E44, G12
Suggested Citation: Suggested Citation
Savov, Alexi, Asset Pricing with Garbage (April 20, 2010). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1345470