Consumption, Dividends, and the Cross-Section of Equity Returns

Bansal, Ravi; Dittmar, Robert F.; Lundblad, Christian

doi:10.2139/ssrn.284208

Cited by 232 publications

(287 citation statements)

References 36 publications

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“…Examples are the external habit model of Campbell and Cochrane (1999), whose implications for bonds were studied by Wachter (2006) and whose implications for the cross-section of stocks were studied separately by Menzly, Santos, and Veronesi (2004) and Santos and Veronesi (2006). Likewise, the implications of the long-run risk model of Bansal and Yaron (2004) for the term structure of interest rates were studied by Piazzesi and Schneider (2006) and Bansal and Shaliastovich (2007), while Bansal, Dittmar, and Lundblad (2005) and Bansal, Dittmar, and Kiku (2007) study the implications for the cross-section of equity portfolios. A small but growing literature models stock and bond returns jointly.…”

Section: Related Literaturementioning

confidence: 99%

The cross-section and time series of stock and bond returns

Koijen

Lustig

Nieuwerburgh

2017

Journal of Monetary Economics

128

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We propose a three-factor model that jointly prices the cross-section of returns on portfolios of stocks sorted on the book-to-market dimension, the cross-section of government bonds sorted by maturity, and time series variation in expected bond returns. The main insight is that innovations to the nominal bond risk premium price the book-to-market sorted stock portfolios. We argue that these innovations capture business cycle risk and show that dividends of the highest book-to-market portfolio fall substantially more than those of the low book-tomarket portfolio during NBER recessions. We propose a structural model that ties together the nominal bond risk premium, the cross-section of book-to-market sorted stock portfolios, and recessions. This model is quantitatively consistent with the observed value, equity, and nominal bond risk premia.

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Section: Related Literaturementioning

confidence: 99%

The cross-section and time series of stock and bond returns

Koijen

Lustig

Nieuwerburgh

2017

Journal of Monetary Economics

128

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“…the countercyclical equity premium and the size effect. Thus, this paper adds to the extensive literature on consumption-based explanations for these two phenomena such as Bansal et al (2005), Yogo (2006), Kang et al (2011), andXiao et al (2013).…”

Section: Introductionmentioning

confidence: 94%

“…In the literature, several papers have related the size anomaly to the consumption risks. Bansal et al (2005) use the aggregate consumption risk reflected in cash flow to account for the return difference in size-sorted portfolios. Similarly as Lettau and Ludvigson (2001), Kang et al (2011) use the detrend macroeconomic variables to show that small stocks have higher consumption beta than large stocks do.…”

Section: Introductionmentioning

confidence: 99%

W-MPS Risk Aversion and the Shadow CAPM: Theory and Empirical Evidence

Lin

Nakata

2015

SSRN Journal

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“…If the representative agent is concerned about both short and long-run consumption risk, she will require higher risk premia on assets that are correlated with long-run consumption growth. Modeling dividend and consumption growth as a vector autoregressive system, Bansal, Dittmar, and Lundblad (2005) determine the exposure of dividends to long-run consumption risk. They show that this exposure helps explain a large fraction of cross-sectional variation in returns across book-to-market, size and momentum portfolios.…”

Section: Related Literature and Further Motivationmentioning

confidence: 99%

Long-horizon consumption risk and the cross-section of returns: new tests and international evidence

Grammig

Schrimpf

Schuppli

2009

The European Journal of Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. 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. Terms of use: Documents in EconStor mayJEL Classification: G12, G15

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Consumption, Dividends, and the Cross-Section of Equity Returns

Cited by 232 publications

References 36 publications

The cross-section and time series of stock and bond returns

The cross-section and time series of stock and bond returns

W-MPS Risk Aversion and the Shadow CAPM: Theory and Empirical Evidence

Long-horizon consumption risk and the cross-section of returns: new tests and international evidence

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