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Grammig, Joachim
Schrimpf, Andreas
Year of Publication: 
Series/Report no.: 
CFR Working Paper No. 07-05
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 reference level model extended by human capital does a good job in explaining size and value premia. Estimated on Fama and French's size and book-tomarket 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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