Date of this Version
Review of Financial Studies
We find that conditional means and variances of consumption growth vary through time, and this variation appears to be associated with the business cycle. A pricing model with fluctuating means and variances of consumption growth provides implications about conditional moments of returns for both short and long investment horizons, and these implications are explored empirically. The U-shaped pattern of first-order autocorrelations of returns, as well as business cycle patterns in the price of risk, appears to be consistent with the model, but our exploration suggests that other implications about conditional return moments are at odds with the data.
This is a pre-copyedited, author-produced PDF of an article accepted for publication in Review of Financial Studies following peer review. The version of record is available online at: http://dx.doi.org/10.1093/rfs/3.2.207.
Kandel, S., & Stambaugh, R. F. (1990). Expectations and Volatility of Consumption and Asset Returns. Review of Financial Studies, 3 (2), 207-232. http://dx.doi.org/10.1093/rfs/3.2.207
Date Posted: 27 November 2017
This document has been peer reviewed.