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Schrimpf, Andreas
Grammig, Joachim G.
Year of Publication: 
Series/Report no.: 
ZEW Discussion Papers 06-032 [rev.]
This paper presents an empirical evaluation of recently proposed asset pricing models which extend the standard preference specification by a reference level of consumption. We motivate an alternative model that accounts for the return on human capital as a determinant of the reference level. Our analysis is based on a broad cross-section of test assets which provides a level playing field for a comparison to established benchmark models. The human capital extended reference level model does a good job in explaining size and value premia. Estimated on Fama and French's size and book-to-market sorted portfolios it outperforms Lettau and Ludvigson's scaled CCAPM and delivers average pricing errors comparable to the Fama-French three-factor model.
Consumption-Based Asset Pricing
Cross-Section of Stock Returns
Reference Level
Document Type: 
Working Paper

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