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Asset Pricing without Garbage

Kröncke, Tim A.. (2017) Asset Pricing without Garbage. Journal of Finance, 72 (1). pp. 47-98.

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Official URL: http://edoc.unibas.ch/42067/

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Abstract

This paper provides an explanation why garbage implies a much lower relative risk aversion in the consumption-based asset pricing model than National Income and Product Accounts (NIPA) consumption expenditure: Unlike garbage, NIPA consumption is filtered to mitigate measurement error. I apply a structural model of the filtering process, which allows to revoke the filter inherent in NIPA consumption. “Unfiltered NIPA consumption” performs well in explaining the equity premium and is priced in the cross-section of stock returns. I discuss the implied properties of true consumption (i.e., without measurement error and filtering) and quantify implications for habit and long-run risk models.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Ehemalige Einheiten Wirtschaftswissenschaften > Corporate Finance (Kröncke)
UniBasel Contributors:Kröncke, Tim
Item Type:Article, refereed
Article Subtype:Research Article
Publisher:Wiley
ISSN:0022-1082
e-ISSN:1540-6261
Note:Publication type according to Uni Basel Research Database: Journal article
Identification Number:
Last Modified:24 Jan 2018 10:12
Deposited On:12 Dec 2016 09:26

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