Working Paper: NBER ID: w0690
Authors: Sanford J. Grossman; Robert J. Shiller
Abstract: The consumption beta theorem of Breeden makes the expected return on any asset a function only of its covariance with changes in aggregate consumption. It is shown that the theorem is more robust than was indicated by Breeden. The theorem obtains even if one deletes Breeden's assumptions that (a) all risky assets are tradable, (b) investors have homogeneous beliefs, (c) other assets can be traded without transactions costs and (d) that all assets have returns which are Ito processes.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| expected return on an asset (G17) | covariance with aggregate consumption (E20) |
| mean excess return on a tradable asset (G12) | covariance with aggregate consumption changes (E20) |
| aggregate consumption (E20) | asset returns (G19) |
| idiosyncratic consumption variations (D11) | asset pricing (G19) |
| expected returns (G17) | consumption covariance (E20) |