Firm Characteristics, Consumption Risk, and Firm-Level Risk Exposures
dc.contributor.author | Dittmar, Robert F. | |
dc.contributor | Lundblad, Christian T. | |
dc.date.accessioned | 2014-11-21T14:49:54Z | |
dc.date.available | 2014-11-21T14:49:54Z | |
dc.date.issued | 2014-10 | |
dc.identifier | 1255 | en_US |
dc.identifier.uri | https://hdl.handle.net/2027.42/109418 | |
dc.description.abstract | Firm-level risk exposures and costs of equity are notoriously difficult to estimate. Using a novel approach mapping consumption risk exposures to firm characteristics, we combine the traditional portfolio-level approach to testing asset pricing models with firm-level information to measure firm-level risk exposures. First, at the portfolio level, we investigate the empirical performance of a simple two-factor consumption-based asset pricing model for the cross-section of equity returns. The priced factors in the model are innovations in the growth and volatility of aggregate consumption. Our empirical results show that this model can explain 66% of the cross-sectional variation in returns on a menu of 55 portfolios spanning size, value, momentum, asset growth, stock issuance, and accruals. Second, we use the estimated model to map point-in-time firm characteristics to consumption risk exposures. Through this measurement procedure, we uncover sizeable cross-sectional and time-series variation in firm consumption risk exposures. We verify that sorting on these ex ante consumption risk exposures produces portfolios with consistent ex post risk exposures and predicts cross-sectional variation in future firm equity returns. | en_US |
dc.subject | Asset Pricing | en_US |
dc.subject | Consumption-Based Asset Pricing | en_US |
dc.subject | Cross-Section of Returns | en_US |
dc.subject.classification | Finance | en_US |
dc.title | Firm Characteristics, Consumption Risk, and Firm-Level Risk Exposures | en_US |
dc.type | Working Paper | en_US |
dc.subject.hlbsecondlevel | Finance | en_US |
dc.subject.hlbtoplevel | Business | |
dc.contributor.affiliationum | Ross School of Business | en_US |
dc.contributor.affiliationother | University of North Carolina Kenan-Flagler Business School | en_US |
dc.contributor.affiliationumcampus | Ann Arbor | |
dc.description.bitstreamurl | http://deepblue.lib.umich.edu/bitstream/2027.42/109418/1/1255_RDittmar.pdf | |
dc.owningcollname | Business, Stephen M. Ross School of - Working Papers Series |
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