Abstract
I propose a consumption-based asset pricing model with disappointment aversion to investigate the link between downside consumption risk and expected returns across asset markets. I find that the disappointment model can explain 95% of the cross-sectional variation in size/book-to-market portfolios and more than 80% of the variation in the joint sample of stocks, bonds, and commodity futures. I also show that the performance of the disappointment model is comparable to that of the Fama-French three-factor specification, regardless of the sample frequency (annual, quarterly). Overall, my results indicate that disappointment aversion considerably improves the fit of consumption-based asset pricing models.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 2851-2889 |
| Number of pages | 39 |
| Journal | Review of Financial Studies |
| Volume | 30 |
| Issue number | 8 |
| DOIs | |
| State | Published - Jan 1 2017 |
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ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
Cite this
Where's the kink? Disappointment events in consumption growth and equilibrium asset prices. / Delikouras, Stefanos.
In: Review of Financial Studies, Vol. 30, No. 8, 01.01.2017, p. 2851-2889.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Where's the kink? Disappointment events in consumption growth and equilibrium asset prices
AU - Delikouras, Stefanos
PY - 2017/1/1
Y1 - 2017/1/1
N2 - I propose a consumption-based asset pricing model with disappointment aversion to investigate the link between downside consumption risk and expected returns across asset markets. I find that the disappointment model can explain 95% of the cross-sectional variation in size/book-to-market portfolios and more than 80% of the variation in the joint sample of stocks, bonds, and commodity futures. I also show that the performance of the disappointment model is comparable to that of the Fama-French three-factor specification, regardless of the sample frequency (annual, quarterly). Overall, my results indicate that disappointment aversion considerably improves the fit of consumption-based asset pricing models.
AB - I propose a consumption-based asset pricing model with disappointment aversion to investigate the link between downside consumption risk and expected returns across asset markets. I find that the disappointment model can explain 95% of the cross-sectional variation in size/book-to-market portfolios and more than 80% of the variation in the joint sample of stocks, bonds, and commodity futures. I also show that the performance of the disappointment model is comparable to that of the Fama-French three-factor specification, regardless of the sample frequency (annual, quarterly). Overall, my results indicate that disappointment aversion considerably improves the fit of consumption-based asset pricing models.
UR - http://www.scopus.com/inward/record.url?scp=85027048786&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85027048786&partnerID=8YFLogxK
U2 - 10.1093/rfs/hhx012
DO - 10.1093/rfs/hhx012
M3 - Article
VL - 30
SP - 2851
EP - 2889
JO - Review of Financial Studies
JF - Review of Financial Studies
SN - 0893-9454
IS - 8
ER -