Consumption with earnings, liquidity, and market based models
The market, earnings, and liquidity growth combine to form a proxy for wealth growth, allowing a recursive consumption model with a low risk aversion coefficient, a risk-free rate close to historical, a high equity premium, and a reasonable elasticity of intertemporal substitution. The empirical con...
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| Veröffentlicht in: | Review of quantitative finance and accounting 2023-02, Vol.60 (2), p.501-530 |
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| container_title | Review of quantitative finance and accounting |
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| creator | Snigaroff, Robert Wroblewski, David |
| description | The market, earnings, and liquidity growth combine to form a proxy for wealth growth, allowing a recursive consumption model with a low risk aversion coefficient, a risk-free rate close to historical, a high equity premium, and a reasonable elasticity of intertemporal substitution. The empirical consumption model does well against major asset pricing puzzles. Tested over 118 years it is not rejected while a forward-looking consumption model using the market alone as a wealth proxy fails. Changing liquidity and earnings forecast consumption and their ‘crashes’ precede consumption declines. We also demonstrate related stock level factors have similar economic magnitude and are significant. These models are consistent to the financial intermediary economic growth literature. Such consistency across approaches adds credence to common earnings and liquidity factors as important risks to investors. |
| doi_str_mv | 10.1007/s11156-022-01103-6 |
| format | Article |
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| source | Business Source Complete; Springer Nature - Complete Springer Journals |
| subjects | Accounting/Auditing Asset management Asset pricing Business models Consumption Corporate Finance Earnings Econometrics Economic growth Economics and Finance Elasticity Finance Human capital Investment advisors Investments Liquidity Operations Research/Decision Theory Original Research Prices Risk Securities markets Wealth |
| title | Consumption with earnings, liquidity, and market based models |
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