Abstract
We show that time variation in macroeconomic uncertainty affects asset prices. Consumption volatility is a negatively priced source of risk for a wide variety of test portfolios. At the firm level, exposure to consumption volatility risk predicts future returns, generating a spread across quintile portfolios in excess of 7% annually. This premium is explained by cross-sectional differences in the sensitivity of dividend volatility to consumption volatility. Stocks with volatile cash flows in uncertain aggregate times require higher expected returns.
Original language | English (US) |
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Pages (from-to) | 2589-2615 |
Number of pages | 27 |
Journal | Journal of Finance |
Volume | 68 |
Issue number | 6 |
DOIs | |
State | Published - Dec 2013 |
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics