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| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | Why Do Value Stocks Have More Consumption Risk? |
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| Institution | University of Zurich |
| Series Name | SSRN |
| Number | 3493784 |
| Date | 2020 |
| Abstract Text | I build a production-based continuous-time equilibrium model with Markov regime switches. The model is solved in closed-form and endogenously generates the following previously documented patterns: (1) Value stocks yield larger returns than growth stocks that cannot be reconciled by CAPM; (2) The cash-flows of value stocks are more exposed to consumption risk than those of growth stocks; (3) The volatility of cash-flows of value stocks are more exposed to consumption volatility than that of growth stocks; (4) The returns of value stocks have larger beta on consumption volatility than growth stocks. Business cycle risk and costly reversibility provides a plausible explanation of those patterns. |
| Official URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3493784 |
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