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Permanent URL to this publication: http://dx.doi.org/10.5167/uzh-52316

Galsb, Victoria; Hoffmann, Mathias (2008). Heterogeneous Expectations, International Consumption Correlations, and Common Risk Factors in World Stock Markets. Working paper series / Institute for Empirical Research in Economics No. 362, University of Zurich.



This paper establishes a surprising and robust empirical similarity between short-run heterogeneous consumption and long-term consumption growth risk models. The models not only deliver a similar fit on a given set of portfolios, their actual pricing errors are also highly correlated. In addition, we find that consumption dispersion is a robust predictor of the transitory component in aggregate consumption growth. To interpret these findings, we propose a model in which aggregate uncertainty is a function of idiosyncratic uncertainty and only long-term consumption growth risknis priced. An implication of this being that consumption dispersion is priced empirically not because markets are necessarily incomplete but because investors disagree in the short-run about theirncommon long-term consumption prospects.


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Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Date:March 2008
Deposited On:29 Nov 2011 22:47
Last Modified:05 Apr 2016 15:12
Series Name:Working paper series / Institute for Empirical Research in Economics
Official URL:http://www.econ.uzh.ch/wp.html

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