NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Composition of Wealth, Conditioning Information, and the Cross-Section of Stock Returns

Nikolai Roussanov

NBER Working Paper No. 16073
Issued in June 2010
NBER Program(s):   AP

Value stocks covary with aggregate consumption more than growth stocks during periods when financial wealth is low relative to consumption. However, the conditional value premium does not exhibit such countercyclical behavior. Consequently, a one-factor conditional consumption-based asset pricing model can be rejected without making any arbitrary assumptions on the dynamics of the price of risk or the conditional moments. Empirical evidence is somewhat more consistent with a consumption-based model augmented with an aggregate wealth growth factor, which can be motivated by either recursive preferences or relative wealth concerns.

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This paper was revised on February 19, 2013

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Document Object Identifier (DOI): 10.3386/w16073

Published: Roussanov, Nikolai, 2014. "Composition of wealth, conditioning information, and the cross-section of stock returns," Journal of Financial Economics, Elsevier, vol. 111(2), pages 352-380.

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