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An Empirical Assessment of a Consumption CAPM with a Reference Level under Incomplete Consumption Insurance

Author

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  • Andrei Semenov

    (Department of Economics, York University)

Abstract

We study asset pricing implications of the preference specification in which an agent derives utility from both the ratio of his consumption to some reference level and this level itself under incomplete consumption insurance and limited asset market participation. Assuming that the reference level responds gradually to changes in aggregate consumption per capita, we show that when asymmetry in individual consumption is taken into account, the obtained estimate of the elasticity of intertemporal substitution is in the conventional range and significantly different from the inverse of the relative risk aversion (RRA) coefficient as the definition of assetholders is tightened. Both the power utility model and the ratio preference specification are rejected statistically.

Suggested Citation

  • Andrei Semenov, 2003. "An Empirical Assessment of a Consumption CAPM with a Reference Level under Incomplete Consumption Insurance," Working Papers 2003_5, York University, Department of Economics.
    • Handle: RePEc:yca:wpaper:2003_5
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    References listed on IDEAS

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    Cited by:

    1. Elminejad, Ali & Havranek, Tomas & Irsova, Zuzana, 2022. "Relative Risk Aversion: A Meta-Analysis," MetaArXiv b8uhe, Center for Open Science.

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    More about this item

    Keywords

    incomplete consumption insurance; intertemporal substitution; limited asset market participation; risk aversion;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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