Alon Brav
Duke University, Durham, NC 27708
Chris Geczy
University of Pennsylvannia, Philadelphia, PA
ABSTRACT
This paper presents an empirical exploration of the simple consumption-based capital asset pricing model (CCAPM) using time series culled from cross sections of disaggregate consumption data. It provides evidence favoring the CCAPM. For example, we find that the correlation of consumption growth of households holding sequentially greater amounts of stocks, bonds, mutual funds, and other securities with the excess market return ranges almost monotonically as high as 50% for subsequent groups of asset-holders. This pattern of increase is matched by increasingly larger time series variation of consumption growth, resulting in very plausible relative risk aversion values. We perform a calibration exercise and a GMM estimation exercise. Both support our conclusion that the consumption CAPM has empirical content.