TY  - JOUR
AU  - Bansal,Ravi
AU  - Dittmar,Robert
AU  - Kiku,Dana
TI  - Cointegration and Consumption Risks in Asset Returns
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13108
PY  - 2007
Y2  - May 2007
UR  - http://www.nber.org/papers/w13108
L1  - http://www.nber.org/papers/w13108.pdf
N1  - Author contact info:
Ravi Bansal
Fuqua School of Business
Duke University
1 Towerview Drive
Durham, NC 27708
Tel: 919/660-7758
Fax: 919/660-8038
E-Mail: ravi.bansal@duke.edu

Robert Dittmar
Stephen M. Ross School of Business
University of Michigan
701 Tappan Street
Ann Arbor, MI 48109
Tel: 734/763-6821
E-Mail: rdittmar@bus.umich.edu

Dana Kiku
Finance Department
Wharton School
University of Pennsylvania
3620 Locust Walk
Philadelphia, PA 19104-6367
Tel: 215/898-1118
Fax: 215/898-6200
E-Mail: kiku@wharton.upenn.edu
AB  - 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.
ER  -