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Real Economy Effects on Consumption-Based CAPM

Author

Listed:
  • Dandan Zheng

    (Business School, Ningbo University, Ningbo 315201, China
    Teaching Center, Ningbo Open University, Ningbo 315016, China)

  • Shusheng Ding

    (Business School, Ningbo University, Ningbo 315201, China)

  • Tianxiang Cui

    (School of Computer Science, University of Nottingham Ningbo China, Ningbo 315104, China)

  • Huan Jin

    (School of Computer Science, University of Nottingham Ningbo China, Ningbo 315104, China)

Abstract

The consumption-based capital asset pricing model (CCAPM) is an attractive research field in finance, and extant studies have examined the impacts of different factors towards traditional CCAPM, intending to improve the model from the practical perspective. In this paper, we comprehensively scrutinize the real economy effects on the CCAPM by comprising expenditure on durable, expenditure on non-durable goods, services, and real estate four factors. Our study pays great attention to the real economy effect on the CCAPM based on two types of portfolios. By employing both time-series and cross-sectional analysis, our empirical results suggest that the real economy factors can help traditional CCAPM to produce better asset pricing results. Particularly, incorporating the real estate component into the CCAPM model can improve its explanation power on the stock market risk. Our results are potentially useful for investors, portfolios managers and policy makers towards the CCAPM.

Suggested Citation

  • Dandan Zheng & Shusheng Ding & Tianxiang Cui & Huan Jin, 2022. "Real Economy Effects on Consumption-Based CAPM," Mathematics, MDPI, vol. 10(3), pages 1-32, January.
    • Handle: RePEc:gam:jmathe:v:10:y:2022:i:3:p:360-:d:733111
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    References listed on IDEAS

    as
    1. Acharya, Viral V. & Pedersen, Lasse Heje, 2005. "Asset pricing with liquidity risk," Journal of Financial Economics, Elsevier, vol. 77(2), pages 375-410, August.
    2. Chen, Ming-Hsiang, 2003. "Risk and return: CAPM and CCAPM," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(2), pages 369-393.
    3. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    4. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    5. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    6. Eugene F. Fama & Kenneth R. French, 2004. "The Capital Asset Pricing Model: Theory and Evidence," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 25-46, Summer.
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    Cited by:

    1. Danilo Leal & Rodrigo Jiménez & Marco Riquelme & Víctor Leiva, 2023. "Elliptical Capital Asset Pricing Models: Formulation, Diagnostics, Case Study with Chilean Data, and Economic Rationale," Mathematics, MDPI, vol. 11(6), pages 1-27, March.

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