Cross-Sectional Consumption-Based Asset Pricing: A Reappraisal
10 Pages Posted: 3 Feb 2011 Last revised: 9 Apr 2015
Date Written: April 2, 2015
The consumption-based asset pricing model with constant relative risk aversion explains the size and value premiums in US data over the period 1929 to 2014. The timing convention used for consumption is crucial for this result. The model matches the cross-sectional variation in mean returns on size and value portfolios with beginning-of-period consumption, but the fit of the model completely breaks down with end-of-period consumption.
Keywords: Consumption-based model, beginning-of-period timing convention, size and value premiums
JEL Classification: G12
Suggested Citation: Suggested Citation