Asset Pricing from Daily Shopper Spending

Abstract

We propose a novel consumption measure that has a daily frequency and is derived from real-time shopping data. Our measure solves the joint equity premium and risk-free rate puzzles with a risk aversion coefficient much lower than any other consumption measure. It can explain the cross-sectional variation in expected returns on various portfolios and individual stocks. By decomposing consumption shocks into different frequencies of volatility, our model demonstrates that the lack of short-term dynamics and intra-annual fluctuations in low-frequency consumption measures results in significantly higher levels of risk aversion.

Keywords: Consumption-based Asset Pricing, Consumption Dynamics, Equity Premium

JEL Classification: C12, E21, E44, G12