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This paper presents an empirical evaluation of recently proposed asset pricing models which extend the standard preference specification by a reference level of consumption. We motivate an alternative model that accounts for the return on human capital as a determinant of the reference level....
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Implications of factor-based asset pricing models for estimation of expected returns and for portfolio selection are investigated. In the presence of model mispricing due to a missing risk factor, the mispricing and the residual covariance matrix are linked together. Imposing a strong form of...
Persistent link: https://www.econbiz.de/10012471625
In a parsimonious regime switching model, we find strong evidence that expected consumption growth varies over time. Adding inflation as a second variable, we uncover two states in which expected consumption growth is low, one with high and one with negative expected inflation. Embedded in a...
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Recent studies suggest that the conditional CAPM might hold, period-by-period, and that time-varying betas can explain … the failures of the simple, unconditional CAPM. We argue, however, that significant departures from the unconditional CAPM … would require implausibly large time-variation in betas and expected returns. Thus, the conditional CAPM is unlikely to …
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