Asset ppricing with a reference level of consumption: New evidence from the cross-section of stock returns
This paper presents an empirical evaluation of recently proposed asset pricing models which extend the standard preference specification by a reference level of consumption. We motivate an alternative model that accounts for the return on human capital as a determinant of the reference level. Our analysis is based on a broad cross-section of test assets, which provides a level playing field for a comparison to established benchmark models. The reference level model extended by human capital does a good job in explaining size and value premia. Estimated on Fama and French's size and book-tomarket sorted portfolios, it outperforms Lettau and Ludvigson's scaled CCAPM and delivers average pricing errors comparable to the Fama-French three-factor model.
Year of publication: |
2009
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Authors: | Grammig, Joachim ; Schrimpf, Andreas |
Publisher: |
Cologne : University of Cologne, Centre for Financial Research (CFR) |
Subject: | Consumption-Based Asset Pricing | Cross-Section of Stock Returns | Reference Level |
Saved in:
Series: | CFR Working Paper ; 07-05 |
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Type of publication: | Book / Working Paper |
Type of publication (narrower categories): | Working Paper |
Language: | English |
Other identifiers: | 703006762 [GVK] hdl:10419/57712 [Handle] RePEc:zbw:cfrwps:0705 [RePEc] |
Classification: | G12 - Asset Pricing |
Source: |
Persistent link: https://www.econbiz.de/10010308664