Ultimate consumption risk and investment-based stock returns

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Motivated by recent works documenting that the returns formed on real investment predict aggregate economic activities, we study whether the ultimate consumption model proposed by Parker and Julliard (2005) explains the cross-section of investment-based stock returns. We find that the ultimate consumption model with horizons from 3 to 4 years outperforms the contemporaneous consumption model. The linearized model's performance is better than that of the Fama-French three-factor model and comparable to that of the Chen-Roll-Ross model. The explanatory power of the ultimate consumption model arises from the close business-cycle relationship between the ultimate consumption growth and the investment-based returns. (C) 2017 Elsevier Inc. All rights reserved.
Publisher
ELSEVIER SCIENCE INC
Issue Date
2017-11
Language
English
Article Type
Article
Keywords

CROSS-SECTION; EXPECTED RETURNS; EMPIRICAL TESTS; LONG-RUN; MARKET; CAPM; BETA

Citation

NORTH AMERICAN JOURNAL OF ECONOMICS AND FINANCE, v.42, pp.473 - 486

ISSN
1062-9408
DOI
10.1016/j.najef.2017.08.008
URI
http://hdl.handle.net/10203/237179
Appears in Collection
MT-Journal Papers(저널논문)
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