NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Cointegration and Consumption Risks in Asset Returns

Ravi Bansal, Robert Dittmar, Dana Kiku

NBER Working Paper No. 13108
Issued in May 2007
NBER Program(s):   AP   EFG

We argue that the cointegrating relation between dividends and consumption, a measure of long run consumption risks, is a key determinant of risk premia at all investment horizons. As the investment horizon increases, transitory risks disappear, and the asset's beta is dominated by long run consumption risks. We show that the return betas, derived from the cointegration-based VAR (EC-VAR) model, successfully account for the crosssectional variation in equity returns at both short and long horizons; this is not the case when the cointegrating restriction is ignored. Our evidence highlights the importance of cointegration-based long run consumption risks for financial markets.

download in pdf format
   (246 K)

email paper

This paper is available as PDF (246 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w13108

Published: Ravi Bansal & Robert Dittmar & Dana Kiku, 2009. "Cointegration and Consumption Risks in Asset Returns," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 22(3), pages 1343-1375, March.

Users who downloaded this paper also downloaded these:
Mueller and Watson w15292 Low-Frequency Robust Cointegration Testing
Bansal and Yaron w8059 Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles
Bansal, Kiku, and Yaron w15504 An Empirical Evaluation of the Long-Run Risks Model for Asset Prices
Mark and Sul t0287 Cointegration Vector Estimation by Panel DOLS and Long-Run Money Demand
Constantinides and Ghosh w14543 Asset Pricing Tests with Long Run Risks in Consumption Growth
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us