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The Impact of Aggregate and Disaggregate Consumption Shocks on the Equity Risk Premium in the United Kingdom

Author

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  • Sunil S. Poshakwale

    (Cranfield School of Management, Cranfield University)

  • Pankaj Chandorkar

    (Newcastle Business School (NBS), Northumbria University)

Abstract

We examine the impact of aggregate and disaggregate consumption shocks on the ex-post Equity Risk Premium (ERP) of FTSE indices and the 25 FamaFrench portfolios. Findings suggest that aggregate consumption shocks seem to explain significant time variation in the ERP. At disaggregated level, the ERP increases when the actual consumption is less than expected. Finally, durable and semi-durable consumption shocks have a greater impact on the ERP than non-durable consumption shocks.

Suggested Citation

  • Sunil S. Poshakwale & Pankaj Chandorkar, 2019. "The Impact of Aggregate and Disaggregate Consumption Shocks on the Equity Risk Premium in the United Kingdom," Annals of Economics and Finance, Society for AEF, vol. 20(2), pages 489-524, November.
    • Handle: RePEc:cuf:journl:y:2019:v:20:i:2:poshakwalechandorkar
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    More about this item

    Keywords

    Equity Risk Premium; Consumption Wealth Channel; Consumption Shocks; Structural Vector Autoregression; Asset Pricing;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G0 - Financial Economics - - General

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