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|Title:||Consumption growth, preference for smoothing, changes in expectations and risk premium|
|Author(s):||Armada, Manuel José da Rocha|
Sousa, Ricardo M.
Wohar, Mark E.
Intertemporal budget constraint
|Journal:||Quarterly Review of Economics and Finance|
|Abstract(s):||This paper derives a relationship between consumption growth, the consumption–wealth ratio and its first-difference, and asset returns. Using quarterly data for sixteen OECD countries, we find that the three-factor asset pricing model explains a large fraction of the variation in real stock returns. The model captures: (i) the concerns of agents with states of the world in which consumption growth is low; (ii) the preference of investors for a smooth consumption path as implied by the intertemporal budget constraint; and (ii) the role played by shifts in expectations about future returns due to positive or negative news about their wealth|
|Access:||Restricted access (UMinho)|
|Appears in Collections:||NIPE - Artigos em Revistas de Circulação Internacional com Arbitragem Científica|
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