Finance Papers

Document Type

Journal Article

Date of this Version

2-2014

Publication Source

Journal of Financial Economics

Volume

111

Issue

2

Start Page

352

Last Page

380

DOI

10.1016/j.jfineco.2013.10.010

Abstract

Value stocks covary with aggregate consumption more than growth stocks during periods when financial wealth is low relative to consumption. However, the conditional value premium does not exhibit such countercyclical behavior. Consequently, a one-factor conditional consumption-based asset pricing model can be rejected without making any arbitrary assumptions on the dynamics of the price of risk or the conditional moments. Empirical evidence is somewhat more consistent with a consumption-based model augmented with an aggregate wealth growth factor, which can be motivated by either recursive preferences or relative wealth concerns.

Copyright/Permission Statement

© 2014. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/.

Embargo Date

2-2018

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Date Posted: 27 November 2017

This document has been peer reviewed.