Non-Substitutable Consumption Growth Risk

77 Pages Posted: 30 Nov 2018 Last revised: 22 Dec 2023

See all articles by Robert F. Dittmar

Robert F. Dittmar

Rice University

Christian Schlag

Goethe University Frankfurt; Leibniz Institute for Financial Research SAFE

Julian Thimme

Karlsruhe Institute of Technology

Date Written: December 18, 2023


Standard applications of the consumption-based asset pricing model assume that goods and services within the nondurable consumption bundle are substitutes. We estimate substitution elasticities between different consumption bundles and show that households cannot substitute energy consumption by consumption of other nondurables. As a consequence, energy consumption affects the pricing function as a separate factor. Variation in energy consumption betas explains a large part of the premia related to value, investment, and operating profitability. For example, value stocks are typically more energy-intensive than growth stocks and thus riskier, since they suffer more from the oil supply shocks that also affect households.

Keywords: asset pricing, consumption, cross-section of stock returns, utility functions

JEL Classification: G12, E44, D81

Suggested Citation

Dittmar, Robert F. and Schlag, Christian and Thimme, Julian, Non-Substitutable Consumption Growth Risk (December 18, 2023). SAFE Working Paper No. 408, Available at SSRN: or

Robert F. Dittmar

Rice University ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Christian Schlag

Goethe University Frankfurt ( email )

Faculty of Economics and Business
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, Hessen 60323

Leibniz Institute for Financial Research SAFE ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323

Julian Thimme (Contact Author)

Karlsruhe Institute of Technology ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131


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