In this paper, we model cash flow and consumption growth rates as a vector-autoregression (VAR), from which we measure the response of cash flow growth to consumption shocks. As the appropriate cash flow proxy is not unambiguous, nor likely to be measured without error, we consider three...

A central economic idea is that an asset's risk premium is determined by its ability to insure against fluctuations in consumption (i.e., by the consumption beta). Cross-sectional differences in consumption betas mirror differences in the exposure of the asset's dividends to aggregate...

Firm-level risk exposures and costs of equity are notoriously difficult to estimate. Using a novel approach mapping consumption risk exposures to firm characteristics, we combine the traditional portfolio-level approach to testing asset pricing models with firm-level information to measure...

We propose a novel approach to measuring firm-level risk exposures and costs of equity. Using a simple consumption-based asset pricing model that explains nearly two-thirds of the variation in average returns across 55 portfolios, we map the relation between exposures to consumption risk and...