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
AN - SCOPUS:85027048786
VL - 30
SP - 2851
EP - 2889
JO - Review of Financial Studies
JF - Review of Financial Studies
SN - 0893-9454
IS - 8
ER -