The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Consumption-Based Asset Pricing Models (Empirical Performance)

  • Fatih Guvenen
  • Hanno Lustig
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2198

Abstract

Asset pricing is a branch of financial economics that is rich in puzzles and anomalies – that is, stylized empirical facts not easily explained by the canonical asset pricing models. These range from the equity premium puzzle and the risk-free rate puzzle to the fact that stock returns are highly predictable. This article discusses different consumption-based asset pricing models that have been developed to resolve these puzzles, and it evaluates their empirical performance.

Keywords

Capital asset pricing model Consumption-based asset pricing models Elasticity of intertemporal substitution Equity premium puzzle External habit Habit formation Heteroskedasticity Imperfect risk sharing Incomplete markets Precautionary savings Real business cycles Recursive preferences Representative agent Risk aversion Risk-free rate puzzle Stochastic discount factor 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Fatih Guvenen
    • 1
  • Hanno Lustig
    • 1
  1. 1.