Countercyclical Stockholders' Consumption Risk and Tests of Conditional CCAPM
82 Pages Posted: 4 Apr 2019 Last revised: 11 Sep 2021
Date Written: November 19, 2019
We evaluate the conditional consumption-CAPM with stockholders' consumption. We find that stockholders' consumption produces risk aversion ranging from 10 to 26 as well as long-term forecasting performance with 38% in-sample and 28% out-of-sample R-squared for the three-year horizon. We identify sources of our findings: (i) The amount of stockholders' consumption risk has the opposite dynamics compared to that of aggregate consumption, but in the same direction with the equity premium and value premium. (ii) Accounting for the interaction between the time-varying price and amount of risk improves the fit to the data.
Keywords: conditional asset pricing test, consumption CAPM, heterogeneous-agents model, price of consumption risk, conditional value premium puzzle
JEL Classification: G12, G17, C13
Suggested Citation: Suggested Citation