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Advances in Consumption-Based Asset Pricing: Empirical Tests

THE HANDBOOK OF THE ECONOMICS OF FINANCE, George Constantinides, Vol. 2, Milton Harris, Rene Stulz, eds., Elsevier Science B.V., 2011

123 Pages Posted: 27 Mar 2011 Last revised: 14 Apr 2011

Sydney C. Ludvigson

New York University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 6, 2011

Abstract

The last 15 years has brought forth an explosion of research on consumption-based asset pricing as a leading contender for explaining aggregate stock market behavior. This research has propelled further interest in consumption-based asset pricing, as well as some debate. This chapter surveys the growing body of empirical work that evaluates today's leading consumption-based asset pricing theories using formal estimation, hypothesis testing, and model comparison. In addition to summarizing the findings and debate, the analysis seeks to provide an accessible description of a few key econometric methodologies for evaluating consumption-based models, with an emphasis on method-of-moments estimators. Finally, the chapter offers a prescription for future econometric work by calling for greater emphasis on methodologies that facilitate the comparison of multiple competing models, all of which are potentially misspecified, while calling for reduced emphasis on individual hypothesis tests of whether a single model is specified without error.

JEL Classification: G11, G12, E44, E21

Suggested Citation

Ludvigson, Sydney C., Advances in Consumption-Based Asset Pricing: Empirical Tests (February 6, 2011). THE HANDBOOK OF THE ECONOMICS OF FINANCE, George Constantinides, Vol. 2, Milton Harris, Rene Stulz, eds., Elsevier Science B.V., 2011. Available at SSRN: https://ssrn.com/abstract=1792875

Sydney C. Ludvigson (Contact Author)

New York University - Department of Economics ( email )

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HOME PAGE: http://www.econ.nyu.edu/user/ludvigsons/

National Bureau of Economic Research (NBER)

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