Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/41390 
Year of Publication: 
2009
Series/Report no.: 
CFR working paper No. 09-02
Publisher: 
University of Cologne, Centre for Financial Research (CFR), Cologne
Abstract: 
This paper investigates whether measuring consumption risk over long horizons can improve the empirical performance of the Consumption CAPM for size and value premia in international stock markets (US, UK, and Germany). In order to account for commonalities in size and book-tomarket sorted portfolios, we also include industry portfolios in our set of test assets. Our results show that, contrary to the findings of Parker and Julliard (2005), the model falls short of providing an accurate description of the cross-section of returns under our modified empirical approach. At the same time, however, measuring consumption risk over longer horizons typically yields lower risk-aversion estimates. Thus, our results suggest that more plausible parameter estimates - as opposed to lower pricing errors - can be regarded as the main achievement of the long-horizon Consumption CAPM.
Subjects: 
Consumption-based Asset Pricing
Long-Run Consumption Risk
Value Puzzle
International Stock Markets
JEL: 
G12
G15
Document Type: 
Working Paper

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