What is the fundamental value of a stock and do prices deviate from it? This paper answers these questions by using a Consumption-Capital Asset Pricing Model. I first show how to express the fundamental price as a function of expected future dividends and consumption as well as of their future...

This research identifies investors’ environmental tastes as an explanation of the pollution premium in asset pricing. Showing that stocks of firms with higher toxic emissions earn higher risk-adjusted returns in the cross-section of the US stock market, we find that environmental tastes are...

We propose a novel consumption measure that has a daily frequency and is based on real-time shopping data. Our measure explains the joint equity-premium–risk-free-rate puzzle with a risk aversion coefficient much lower than any other consumption measures. It encompasses other consumption...

This paper proposes an estimable asset pricing model that builds upon micro consumption andreference-dependent preference. Central to the model is an S-shaped consumption utility function that is convex below the reference point. The model quantitatively accounts for both low risk-free rates and...

Two broad classes of consumption dynamics - long-run risks and rare disasters - have proven successful in explaining the equity premium puzzle when used in conjunction with recursive preference. We show that bounds a-la Gallant, Hansen and Tauchen (1990) that restrict the volatility of the...

Dynamic asset pricing models typically do not generate trading volume whereas empirically trading volume is strongly related to asset prices; volume is usually high when returns are high and during periods of high return volatility. Stock prices on the other hand are known to be quite volatile...