Countercyclical Stockholders' Consumption Risk and Tests of Conditional CCAPM

82 Pages Posted: 4 Apr 2019 Last revised: 11 Sep 2021

See all articles by Redouane Elkamhi

Redouane Elkamhi

University of Toronto - Rotman School of Management

Chanik Jo

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Date Written: November 19, 2019

Abstract

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

Elkamhi, Redouane and Jo, Chanik, Countercyclical Stockholders' Consumption Risk and Tests of Conditional CCAPM (November 19, 2019). Available at SSRN: https://ssrn.com/abstract=3349844 or http://dx.doi.org/10.2139/ssrn.3349844

Redouane Elkamhi

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Chanik Jo (Contact Author)

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

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