Non-substitutable consumption growth risk

  • Standard applications of the consumption-based asset pricing model assume that goods and services within the nondurable consumption bundle are substitutes. We estimate substitution elasticities between different consumption bundles and show that households cannot substitute energy consumption by consumption of other nondurables. As a consequence, energy consumption affects the pricing function as a separate factor. Variation in energy consumption betas explains a large part of the premia related to value, investment, and operating profitability. For example, value stocks are typically more energy-intensive than growth stocks and thus riskier, since they suffer more from the oil supply shocks that also affect households.

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Author:Robert F. DittmarGND, Christian SchlagORCiDGND, Julian ThimmeORCiDGND
Series (Serial Number):SAFE working paper (408)
Place of publication:Frankfurt am Main
Document Type:Working Paper
Year of Completion:2023
Year of first Publication:2023
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2023/12/19
Tag:asset pricing; consumption; cross-section of stock return; utility functions
Edition:December 13, 2023
Page Number:77
An earlier version of this paper circulated under the title "Fuel is Pumping Premiums: A Consumption-based Explanation of the Value Anomaly".
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL-Classification:D Microeconomics / D8 Information, Knowledge, and Uncertainty / D81 Criteria for Decision-Making under Risk and Uncertainty
E Macroeconomics and Monetary Economics / E4 Money and Interest Rates / E44 Financial Markets and the Macroeconomy
G Financial Economics / G1 General Financial Markets / G12 Asset Pricing; Trading volume; Bond Interest Rates
Licence (German):License LogoDeutsches Urheberrecht