Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaper › Journal article › Research › peer-review
Consumption Fluctuations and Expected Returns. / Atanasov, Victoria; Møller, Stig V.; Priestley, Richard.
In: Journal of Finance, Vol. 75, No. 3, 2020, p. 1677-1713.Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaper › Journal article › Research › peer-review
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TY - JOUR
T1 - Consumption Fluctuations and Expected Returns
AU - Atanasov, Victoria
AU - Møller, Stig V.
AU - Priestley, Richard
PY - 2020
Y1 - 2020
N2 - This paper introduces a novel consumption-based variable, cyclical consumption, and examines its predictive properties for stock returns. Future expected stock returns are high (low) when aggregate consumption falls (rises) relative to its trend and marginal utility from current consumption is high (low). We show that the empirical evidence ties consumption decisions of agents to time variation in returns in a manner consistent with asset pricing models based on external habit formation. The predictive power of cyclical consumption is not confined to bad times and subsumes the predictability of many popular forecasting variables.
AB - This paper introduces a novel consumption-based variable, cyclical consumption, and examines its predictive properties for stock returns. Future expected stock returns are high (low) when aggregate consumption falls (rises) relative to its trend and marginal utility from current consumption is high (low). We show that the empirical evidence ties consumption decisions of agents to time variation in returns in a manner consistent with asset pricing models based on external habit formation. The predictive power of cyclical consumption is not confined to bad times and subsumes the predictability of many popular forecasting variables.
UR - http://www.scopus.com/inward/record.url?scp=85077879989&partnerID=8YFLogxK
U2 - 10.1111/jofi.12870
DO - 10.1111/jofi.12870
M3 - Journal article
AN - SCOPUS:85077879989
VL - 75
SP - 1677
EP - 1713
JO - Journal of Finance
JF - Journal of Finance
SN - 0022-1082
IS - 3
ER -