Probably not. First, allowing the probabilities attached to the states of the economy to differ from their sample frequencies, the Consumption-CAPM is still rejected by the data and requires a very high level of Relative Risk Aversion(RRA) in order to rationalize the stock market risk premium....

Probably not. First, allowing the probabilities attached to the states of the economy to differ from their sample frequencies, the Consumption-CAPM is still rejected by the data and requires a very high level of Relative Risk Aversion (RRA) in order to rationalize the stock market risk premium....

We study a broad class of asset pricing models in which the stochastic discount factor (SDF) can be factorized into an observable component (e.g., a parametric function of consumption) and a potentially unobservable one (e.g., habit level or the return on total wealth). Exploiting this...