Resource title

Asset Pricing with a Reference Level of Consumption: New Evidence from the Cross-Section of Stock Returns

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Resource description

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. Our analysis is based on a broad cross-section of test assets which provides a level playing field for a comparison to established benchmark models. The human capital extended reference level model does a good job in explaining size and value premia. Estimated on Fama and French's size and book-to-market sorted portfolios it outperforms Lettau and Ludvigson's scaled CCAPM and delivers average pricing errors comparable to the Fama-French three-factor model.

Resource author

Andreas Schrimpf, Joachim G. Grammig

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/24703

Resource license

Adapt according to the presented license agreement and reference the original author.