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Tuesday, July 21, 2020 | History

4 edition of Consumption risk and expected stock returns found in the catalog.

Consumption risk and expected stock returns

Jonathan A. Parker

Consumption risk and expected stock returns

by Jonathan A. Parker

  • 22 Want to read
  • 40 Currently reading

Published by Woodrow Wilson School of Public and International Affairs in [Princeton, NJ] .
Written in English

    Subjects:
  • Consumption (Economics),
  • Capital assets pricing model.,
  • Rate of return -- Mathematical models.

  • Edition Notes

    Statementby Jonathan A. Parker.
    SeriesDiscussion papers in economics / Woodrow Wilson School of Public and International Affairs ;, #223, Discussion papers in economics (Woodrow Wilson School of Public and International Affairs : Online) ;, no. 223.
    ContributionsWoodrow Wilson School of Public and International Affairs.
    Classifications
    LC ClassificationsHB1
    The Physical Object
    FormatElectronic resource
    ID Numbers
    Open LibraryOL3389268M
    LC Control Number2004615461

    Consumption Volatility and the Cross-Section of Stock Returns∗ Roméo Tédongap Stockholm School of Economics First Version: November , This Version: November Abstract In this paper, I show that conditional volatility of consumption accounts for differences in risk premia across size and book-to-market sorted portfolios both. This paper studies the role of fluctuations in the aggregate consumption–wealth ratio for predicting stock returns. Using U.S. quarterly stock market data, we find that these fluctuations in the consumption–wealth ratio are strong predictors of both real stock returns and excess returns over a Treasury bill rate.

    Risk, Uncertainty, and Expected Returns Turan G. Bali and Hao Zhou∗ Abstract A conditional asset pricing model with risk and uncertainty implies that the time-varying exposures of equity portfolios to the market and uncertainty factors carry positive risk premia. The empirical results from the size, book-to-market, momentum, and industry. Downloadable! This study extends the standard consumption-based capital asset pricing model (C-CAPM) to include two additional factors related to firm size (SMB) and book-to-market value ratio (HML). The inclusion of HML improves mainly the fit of the low book-to-market portfolios, SMB, and HML that are not correctly priced in the standard C-CAPM.

    Aggregate consumption growth reacts slowly, but signi cantly, to bond and stock return innovations. As a consequence, slow consumption adjustment (SCA) risk, measured by the reaction of consumption growth cumulated over many quarters following a return, can explain most of the cross-sectional variation of expected bond and stock returns. We find that the expected returns of the ultimate consumption model with S = 15 are % for the lowest investment portfolio and % for the highest investment portfolio, respectively. In a sharp contrast, the Fama-French model desperately fails in that its expected returns for the lowest and highest investment portfolios are −% and −%.Author: Hankil Kang, Jangkoo Kang, Changjun Lee.


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Consumption risk and expected stock returns by Jonathan A. Parker Download PDF EPUB FB2

A Consumption-Based Explanation of Expected Stock Returns higher than the EIS. First, small stocks and value stocks have higher durable consumption betas than big stocks and growth stocks. Simply put, the returns on small stocks and value stocks. Cash Flow, Consumption Risk, and Stock Returns risk premium, much as higher beta leads to higher return in CAPM.

Consistent with the intuition in Lettau and Wachter (), cash flow duration also affects the risk premium. Interestingly, when there is large cross-sectional variation.

Get this from a library. Consumption risk and expected stock returns. [Jonathan A Parker; National Bureau of Economic Research.]. Get this from a library. Consumption risk and expected stock returns.

[Jonathan A Parker; National Bureau of Economic Research.] -- Abstract: Following the textbook C-CAPM, the consumption risk of an asset is typically measured as the contemporaneous covariance of the marginal utility of consumption and the return on that asset.

Consumption Risk and Expected Stock Returns Jonathan A. Parker. NBER Working Paper No. Issued in March NBER Program(s):Monetary Economics, Asset Pricing Following the textbook C-CAPM, the consumption risk of an asset is typically measured as the contemporaneous covariance of the marginal utility of consumption and the return on that asset.

innovations. As a consequence, slow consumption adjustment (SCA) risk, measured by the reaction of consumption growth cumulated over many quarters following a return, can explain most of the cross-sectional variation of expected bond and stock returns.

Moreover, SCA shocks explain about a quarter of the time series variation of consumption. Consumption Risk Consumption risk and expected stock returns book Expected Stock Returns Jonathan A. Parker NBER Working Paper No. March JEL No. G12, G11, E21 ABSTRACT Following the textbook C-CAPM, the consumption risk of an asset is typically measured as the contemporaneous covariance of the marginal utility of consumption and the return on that by: Risk, Uncertainty, and Expected Returns Abstract A consumption-based asset pricing model with risk and uncertainty implies that the time-varying exposures of equity portfolios to the market and uncertainty factors carry positive risk premiums.

The empirical results from. THE MACROECONOMICS OF STOCK-MARKET RETURNS† Consumption Risk and Expected Stock Returns By JONATHAN A.

PARKER* U.S. stock returns are large, predictable over time, and predictable across stocks. The average return on a diversified market portfolio has av-eraged 8 percent per year more than the return on a short-term treasury bill.

The. size or book-to-market ratio.4 I then focus on deriving and testing the implication of such cash flow process on the cross-sectional variation in expected returns. Under reasonable assumptions about investors’ preferences and the stochastic process of aggregate consumption growth, I show.

Common risk factors in the returns on stocks and bonds* that size and book-to-market equity indeed proxy for sensitivity to common risk factors in stock returns.

Moreover, for the stock portfolios we examine, the intercepts from three-factor regressions that include the excess market return for the general level of expected returns on.

existing stock of durables is high relative to current demand. Therefore, the cash flow of durable-good producers is exposed to higher systematic risk when the stock of durables is high relative to its expenditure, and their conditional expected returns are more time-varying than those of Cited by: of output is a source of consumption risk that is priced in both the cross-section and the time series of expected stock returns.

We start with a representative household that has utility over a nondurable and a durable consumption good (Dunn and SingletonEichenbaum and HansenYogoPiazzesi, Schneider and Tuzel ).File Size: KB.

A Consumption-Based Explanation of Expected Stock Returns Abstract When utility is nonseparable in nondurable and durable consumption and the elasticity of substitution between the two consumption goods is sufficiently high, marginal utility rises when durable consumption by: cash flows and stock returns, which is the basis for the third and fourth findings above.

Finally, the model provides an Euler equation as a way to test whether the durability of output is a source of consumption risk that is priced in both the cross-section and the time series of expected returns.

Empirically, I measure both cash flow characteristics using only consumption and accounting data. I show that the two-factor cash flow model is able to explain 82% of the cross-sectional variation in returns on size or book-to-market sorted stock by: of cross-sectional variation in expected returns across US size and book-to-market sorted portfolios.3 In this paper, we provide new detailed evidence as to whether long-run consumption risk helps explain the cross-section of expected returns in international stock markets.

In par. Consumption Capital Asset Pricing Model - CCAPM: A financial model that extends the concepts of the capital asset pricing model (CAPM) to include Author: Will Kenton. The second insight is that the risk premia across factors should be linked to each other through the willingness of investors tobear risk.

I test whether the returns associated with the size effect, the book-to-market effect, and the momentum effect are consistent with these model is estimated using a multivariate VAR-GARCH Cited by:   Consumption Risk and Expected Stock Returns Consumption Risk and Expected Stock Returns Parker, Jonathan A â By JONATHAN A.

PARKER* U.S. stock returns are large, predictable over time, and predictable across stocks. The average return on a diversiï¬ ed market portfolio has averaged 8 percent per year more than the return on a short-term treasury bill. Consumption Risk and the Cross Section of Expected Returns Jonathan A.

Parker Princeton University and National Bureau of Economic Research Christian Julliard Princeton University This paper evaluates the central insight of the consumption capital asset pricing model that an asset’s expected return is determined by its equilibrium risk to.available stock-level market capitalization and book equity figures from CRSP and Compustat and obtain stock-level book values of NYSE firms prior to June from Kenneth French’s website.

We use the day T-bill rate from CRSP Consumption risk and expected returns on the 25 Fama–French portfolios.Consumption Risk and Expected Futures Returns. Unlike for stock returns, ultimate consumption (i.e., contemporaneous plus future consumption) leads to lower per-formance of the consumption.