Necessary Evidence for a Risk Factor's Relevance

49 Pages Posted: 26 May 2020 Last revised: 23 Nov 2024

See all articles by Alex Chinco

Alex Chinco

City University of NY, Baruch College, Zicklin School of Business

Samuel M. Hartzmark

Boston College - Carroll School of Management

Abigail B. Sussman

University of Chicago - Booth School of Business

Date Written: May 2020

Abstract

Textbook finance theory assumes that investors strategically try to insure themselves against bad future states of the world when forming portfolios. This is a testable assumption, surveys are ideally suited to test it, and we develop a framework for doing so. Our framework combines survey experiments with field data to test this assumption as it pertains to any candidate risk factor. We study consumption growth to demonstrate the approach. While participants strategically respond to changes in the mean and volatility of stock returns when forming their portfolios, there is no evidence that investors view this canonical risk factor as relevant.

Suggested Citation

Chinco, Alexander and Hartzmark, Samuel M. and Sussman, Abigail B., Necessary Evidence for a Risk Factor's Relevance (May 2020). NBER Working Paper No. w27227, Available at SSRN: https://ssrn.com/abstract=3609680

Alexander Chinco (Contact Author)

City University of NY, Baruch College, Zicklin School of Business ( email )

One Bernard Baruch Way
New York, NY 10010
United States

HOME PAGE: http://www.alexchinco.com

Samuel M. Hartzmark

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Abigail B. Sussman

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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