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Department of Business Studies, Aarhus School of Business, University of Aarhus Finance Working Papers, Department of Business Studies, Aarhus School of Business, University of Aarhus

No 04-2:
Estimating the Consumption-Capital Asset Pricing Model without Consumption Data: Evidence from Denmark

Anne-Sofie Reng Rasmussen ()

Abstract: This paper evaluates the ability of the multifactor model of Campbell

(1993, 1996) to explain time-series and cross-sectional patterns of

Danish stock and bond returns. The model is obtained by substituting

consumption out of the intertemporal budget constraint of the representative

agent in the traditional consumption-based capital asset pricing

model (C-CAPM). This enables the model to be estimated without the

use of consumption data. Estimation of the model results in reasonable

preference parameter estimates. Unlike previous research based on this

model, the restrictions implied by both the conditional and unconditional

model are generally not rejected, and Hansen and Jagannathanís (1997)

specification error measures generally imply small pricing errors.

Keywords: Intertemporal asset pricing; VAR model; Hansen-Jagannathan specification error; (follow links to similar papers)

50 pages, May 27, 2004

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