We formulate a consumption-based asset pricing model in which aggregate risk aversion is time-varying in response to both news about consumption growth (as in a habit formation model) and news about inflation. We estimate our model and explore its pricing implications on the term structure of...

We investigate the predictive power of market volatility for momentum. We find that (1) market volatility has significant power to forecast momentum payoffs, which is robust after controlling for market state and business cycle variables; (2) market volatility absorbs much of the predictive...

This paper investigates the importance of idiosyncratic consumption risk for the cross-sectional variation in average returns on stocks and bonds. If idiosyncratic consumption risk is not priced, the only pricing factor in a multiperiod economy is the rate of aggregate consumption growth. We...

A growing literature documents that various strategies of rotating across equity styles generate significant returns. However, the conventional risk adjustment regression is problematic in evaluating the gains from style rotation. I propose a weight-based multifactor risk adjustment approach as...

This paper presents a new test of conditional versions of the Sharpe-Lintner CAPM, the Jagannathan and Wang (1996) extension of the CAPM, and the Fama and French (1993) three-factor model. The test is based on a general nonparametric methodology that avoids functional form misspecification of...