Asset pricing without garbage
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Authors
Author (Corporation)
Publication date
2017
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Type
01A - Journal article
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Parent work
The Journal of Finance
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DOI of the original publication
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Series
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Volume
72
Issue / Number
1
Pages / Duration
47-98
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Publisher / Publishing institution
Wiley-Blackwell
Place of publication / Event location
Online
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Abstract
This paper provides an explanation for why garbage implies a much lower relative risk aversion in the consumption-based asset pricing model than National Income and Product Accounts (NIPA) consumption expenditure: Unlike garbage, NIPA consumption is filtered to mitigate measurement error. I apply a simple model of the filtering process that allows one to undo the filtering inherent in NIPA consumption. “Unfiltered NIPA consumption” well explains the equity premium and is priced in the cross-section of stock returns. I discuss the likely properties of true consumption (i.e., without measurement error and filtering) and quantify implications for habit and long-run risk models.
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Subject (DDC)
330 - Wirtschaft
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ISBN
ISSN
1540-6261
0022-1082
0022-1082
Language
English
Created during FHNW affiliation
No
Strategic action fields FHNW
Publication status
Published
Review
Peer review of the complete publication
Open access category
Closed
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Citation
KRÖNCKE, Tim, 2017. Asset pricing without garbage. The Journal of Finance. 2017. Bd. 72, Nr. 1, S. 47–98. DOI 10.1111/jofi.12438. Verfügbar unter: https://irf.fhnw.ch/handle/11654/48220