We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Do Consumption-Based Asset Pricing Models Explain the Dynamics of Stock Market Returns?
- Authors
Ashby, Michael William; Linton, Oliver Bruce
- Abstract
We show that three prominent consumption-based asset pricing models—the Bansal–Yaron, Campbell–Cochrane and Cecchetti–Lam–Mark models—cannot explain the dynamic properties of stock market returns. We show this by estimating these models with GMM, deriving ex-ante expected returns from them and then testing whether the difference between realised and expected returns is a martingale difference sequence, which it is not. Mincer–Zarnowitz regressions show that the models' out-of-sample expected returns are systematically biased. Furthermore, semi-parametric tests of whether the models' state variables are consistent with the degree of own-history predictability in stock returns suggest that only the Campbell–Cochrane habit variable may be able to explain return predictability, although the evidence on this is mixed.
- Subjects
RATE of return on stocks; PRICES; EXPECTED returns; REAL estate sales; HOUSING market
- Publication
Journal of Risk & Financial Management, 2024, Vol 17, Issue 2, p71
- ISSN
1911-8066
- Publication type
Article
- DOI
10.3390/jrfm17020071