The Long and the Short of Asset Prices: Using Long Run Consumption-Return Correlations to Test Asset Pricing Models
This paper examines a new set of implications of existing asset pricing models for the correlation between returns and consumption growth over the short and the long run. The findings suggest that external habit formation models face a challenge in producing two robust facts in aggregate data, namely, that stock market returns lead consumption growth, and that the correlation between returns and consumption growth is higher at low frequencies than it is at high frequencies. To reconcile these facts with a consumption-based model, I show that one needs to focus on models that contain a forward looking consumption component, i.e., models that allow for both trend and cyclical fluctuations in consumption, and that link expected returns to the cyclical fluctuations in consumption. The models by Bansal and Yaron (2004) and Panageas and Yu (2005) provide examples of such models.
Jianfeng Yu
Department of Finance, 3-133 Carlson School of Management, 321 19th Avenue South, Minneapolis, MN 55455
国际会议
广州
英文
1-70
2009-07-07（万方平台首次上网日期，不代表论文的发表时间）