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| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | Heterogeneous Expectations, International Consumption Correlations, and Common Risk Factors in World Stock Markets |
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| Institution | University of Zurich |
| Series Name | Working paper series / Institute for Empirical Research in Economics |
| Number | No. 362 |
| ISSN | 1424-0459 |
| Date | 2008 |
| Abstract Text | 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. |
| Official URL | http://www.econ.uzh.ch/wp.html |
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