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Articles (2015), Review of Finance (ex European Finance Review), 19 (1), pp. 367-405

Consumption Volatility and the Cross-Section of Stock Returns

I derive and test multi-horizon implications of a consumption-based equilibrium model featuring fluctuating expected growth and volatility. My setup allows consumption dynamics to be estimated jointly with covariance risk prices in a single-stage generalized method of moment, and then inferences from asset pricing tests reflect uncertainty coming from factor estimation. I show that changes in consumption volatility are the key driver for explaining major asset pricing anomalies across risk horizons, while other factors play no or a secondary role. Value stocks and past long-term losers pay higher average returns mainly because they covary more negatively with these changes than what other stocks do. Lien vers l'article

TÉDONGAP, R. (2015). Consumption Volatility and the Cross-Section of Stock Returns. Review of Finance (ex European Finance Review), 19(1), pp. 367-405.