Internet Appendix: Asset Pricing without Garbage

37 Pages Posted: 15 Nov 2015 Last revised: 19 Jul 2016

See all articles by Tim Alexander Kroencke

Tim Alexander Kroencke

University of Neuchatel - Institute of Financial Analysis

Date Written: February 10, 2016


This paper provides an explanation for why garbage implies a much lower relative risk aversion in the consumption-based asset pricing model than National Income and Product Accounts (NIPA) consumption expenditure: unlike garbage, NIPA consumption is filtered to mitigate measurement error. I apply a simple model of the filtering process that allows one to undo the filtering inherent in NIPA consumption. “Unfiltered NIPA consumption” well explains the equity premium and is priced in the cross-section of stock returns. I discuss the likely properties of true consumption (i.e., without measurement error and filtering) and quantify implications for habit and long-run risk models.

The paper "Asset Pricing without Garbage" to which these Appendices apply is available at the following URL:

Keywords: consumption-based asset pricing, equity premium, relative risk aversion, cross-section of stock returns, consumption volatility, filtering

JEL Classification: G12

Suggested Citation

Kroencke, Tim Alexander, Internet Appendix: Asset Pricing without Garbage (February 10, 2016). Available at SSRN: or

Tim Alexander Kroencke (Contact Author)

University of Neuchatel - Institute of Financial Analysis ( email )

Neuchatel, CH-2000

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