A Single-Factor Consumption-Based Asset Pricing Model

Stefanos Delikouras, Alexandros Kostakis

Research output: Contribution to journalArticlepeer-review

6 Scopus citations


We propose a single-factor asset pricing model based on an indicator function of consumption growth being less than its endogenous certainty equivalent. This certainty equivalent is derived from generalized disappointment-aversion preferences, and it is located approximately 1 standard deviation below the conditional mean of consumption growth. Our single-factor model can explain the cross section of expected returns for size, value, reversal, profitability, and investment portfolios at least as well as the Fama-French multifactor models. Our results show strong empirical support for asymmetric preferences and question the effectiveness of the smooth utility framework, which is traditionally used in consumption-based asset pricing.

Original languageEnglish (US)
Pages (from-to)789-827
Number of pages39
JournalJournal of Financial and Quantitative Analysis
Issue number2
StatePublished - Apr 1 2019
Externally publishedYes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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