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Intertemporal Asset Pricing Without Consumption Data: Empirical Tests

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  • Yuming Li

Abstract

In this paper I conduct tests of an intertemporal asset pricing model using variables that forecast stock returns as the risk factors. I document that the forecasting variables are priced so that expected excess returns are related to their conditional covariances with the forecasting variables. The variability in the covariance risk fails to explain the cross‐sectional and time‐series variation in expected stock returns. Evidence rejects restrictions on the prices of covariance risk imposed by the model with constant volatilities. I also find that an extended model that allows time‐varying conditional volatilities is misspecified.

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  • Yuming Li, 1997. "Intertemporal Asset Pricing Without Consumption Data: Empirical Tests," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 20(1), pages 53-69, March.
    • Handle: RePEc:bla:jfnres:v:20:y:1997:i:1:p:53-69
    DOI: 10.1111/j.1475-6803.1997.tb00236.x
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    Cited by:

    1. Guo, Hui, 2006. "Time-varying risk premia and the cross section of stock returns," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 2087-2107, July.
    2. John Y. Campbell & Tuomo Vuolteenaho, 2004. "Bad Beta, Good Beta," American Economic Review, American Economic Association, vol. 94(5), pages 1249-1275, December.
    3. Li, Yuming, 1998. "Expected stock returns, risk premiums and volatilities of economic factors1," Journal of Empirical Finance, Elsevier, vol. 5(2), pages 69-97, June.
    4. Tyler Muir & Erkko Etula & Tobias Adrian, 2011. "Broker-Dealer Leverage and the Cross-Section of Stock Returns," 2011 Meeting Papers 1448, Society for Economic Dynamics.

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