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Consumption Risk, Stock Returns, and Economic Cycles

Author

Listed:
  • Victoria Atanasov

    (Chair of Finance, University of Mannheim, L9 1-2, Mannheim 68161, Germany)

Abstract

We decompose the standard consumption beta into two components that measure consumption risk in high and low economic activity states. Recessionary consumption risk commands a positive and statistically significant compensation, while the market price of expansionary consumption risk is not robust. The two-beta model explains well the cross-section of excess returns on book-to-market-, size-, and momentum-sorted portfolios, and substantially outperforms the traditional one-beta model. The results hold through for various business cycle classifications and alternative consumption measures.

Suggested Citation

  • Victoria Atanasov, 2023. "Consumption Risk, Stock Returns, and Economic Cycles," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 13(01), pages 1-36, March.
    • Handle: RePEc:wsi:qjfxxx:v:13:y:2023:i:01:n:s2010139223500015
    DOI: 10.1142/S2010139223500015
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    More about this item

    Keywords

    Consumption risk; business cycle; cross-section of expected returns;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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