Short-Run and Long-Run Consumption Risks, Dividend Processes, and Asset Returns

58 Pages Posted: 24 May 2013 Last revised: 24 Aug 2016

See all articles by Jun Li

Jun Li

University of Texas at Dallas

Harold H. Zhang

University of Texas at Dallas - Naveen Jindal School of Management; China Academy of Financial Research (CAFR)

Date Written: August 23, 2016

Abstract

We examine the implications of short-run and long-run consumption risks on the momentum and long-term contrarian profits and the value premium in a unified economic framework. By introducing time-varying firm cash flow exposures to the short-run and long-run shocks in consumption growth, we find the otherwise standard intertemporal asset pricing model goes a long way toward generating the momentum and long-term contrarian profits and the value premium. The model also reproduces the size effect, the pairwise correlations between the profitabilities of these investment strategies, and the performance of the standard CAPM and the consumption CAPM in explaining these well-documented return behaviors.

Keywords: Short-run and long-run consumption risks, Momentum and long-term contrarian profits, Value premium

JEL Classification: G12, E44

Suggested Citation

Li, Jun and Zhang, Harold Huibing, Short-Run and Long-Run Consumption Risks, Dividend Processes, and Asset Returns (August 23, 2016). Review of Financial Studies (RFS), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2269883 or http://dx.doi.org/10.2139/ssrn.2269883

Jun Li

University of Texas at Dallas ( email )

800 West Campbell Road, SM 31
Richardson, TX 75080
United States
972-883-4422 (Phone)

Harold Huibing Zhang (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

Register to save articles to
your library

Register

Paper statistics

Downloads
273
rank
107,521
Abstract Views
4,026
PlumX Metrics