Year: 2014
Type: report
Abstract: We show that shocks to household consumption growth are negatively skewed, persistent, countercyclical, and drive asset prices.We construct a parsimonious model where heterogeneous households have recursive preferences.A single state variable drives the conditional crosssectional moments of household consumption growth.The estimated model fits well the unconditional cross-sectional moments of household consumption growth and the moments of the risk-free rate, equity premium, price-dividend ratio, and aggregate dividend and consumption growth.The model-implied risk-free rate and price-dividend ratio are procyclical while the market return has countercyclical mean and variance.Finally, household consumption risk explains the cross-section of excess returns.
DOI: 10.3386/w20110
Authors: George Constantinides, Anisha Ghosh
Institutions: University of Southern California, National Bureau of Economic Research, University of British Columbia, University of Miami, University of California, Los Angeles, Georgetown University, University of Michigan, University of Chicago, New York University, Concordia University, Carnegie Mellon University, The University of Texas at Austin
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
Funder: University of Chicago
OpenAlex ID: W2744135155