Rediscovering the CCAPM Lost in Data Revisions

63 Pages Posted: 15 Oct 2019 Last revised: 4 Aug 2020

See all articles by Hui Guo

Hui Guo

University of Cincinnati - Department of Finance - Real Estate

Yu-Jou Pai

Concordia University

Date Written: August 3, 2020

Abstract

The CCAPM has significant explanatory power for cross-sectional expected stock returns when we use \emph{real-time} consumption, in contrast with poor performance of \emph{revised} latest-vintage consumption documented in previous studies. The Bureau of Economic Analysis smooths consumption data gradually through data revisions. Data smoothing introduces future information to the estimation and makes latest-vintage consumption a poor measure of systematic risk. Our calibration of a stylized model shows that a substantial degree of smoothing is needed to account for key moments of both real-time and revised consumption.

Keywords: Consumption-based Capital Asset Pricing Model, Anomalies, Real-Time Data, Data Revisions, Macroeconomic Risk

JEL Classification: G12, E21

Suggested Citation

Guo, Hui and Pai, Yu-Jou, Rediscovering the CCAPM Lost in Data Revisions (August 3, 2020). Available at SSRN: https://ssrn.com/abstract=3463879 or http://dx.doi.org/10.2139/ssrn.3463879

Hui Guo (Contact Author)

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business
418 Carl H. Lindner Hall
Cincinnati, OH 45221
United States
513.556.7077 (Phone)
513.556.0979 (Fax)

HOME PAGE: http://homepages.uc.edu/~guohu/

Yu-Jou Pai

Concordia University ( email )

Montreal, Quebec
Canada

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