Leisure and long-run risks: An empirical evaluation on value premium puzzle |
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| Institution: | 1. School of Finance/Institute of Big Data, Southwestern University of Finance and Economics, 611130 Chengdu, Sichuan, China;1. Department of Finance, School of Economics and Finance, Universidad EAFIT, Carrera 49 No. 7 Sur-50, Medellin, Colombia;2. School of Management, Universidad de los Andes, Calle 21, No. 1-20, Bogota, Colombia;3. Department of Economics and IME, University of Salamanca, Campus Miguel de Unamuno, 37007 Salamanca, Spain;1. School of Mathematical Sciences, University of Jinan, China;2. SHU-UTS SILC Business School, Shanghai University, China;1. Department of Finance, Fujian Business University, 19, Huang Pu, Gulou District, Fuzhou, Fujian, People''s Republic of China;2. Department of Finance, College of Economics, Jinan University, No. 601 Huangpu Avenue West, Guanzhou, Guandong 510632, People’s Republic of China;1. School of Finance, Southwestern University of Finance and Economics, Chengdu, Sichuan, PR China;2. School of Economics and Management, Southwest Jiaotong University, Chengdu, Sichuan, PR China;1. School of Securities and Futures, Southwestern University of Finance and Economics, China;2. Department of Finance, National Central University, No. 300, Jhongda Rd., Jhongli City, Taoyuan County 32001, Taiwan, ROC;3. School of Securities and Futures, Southwestern University of Finance and Economics, No. 55, Guanghuacun Street, Chengdu, Sichuan 610074, China |
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| Abstract: | I study the ability of a long-run risk model, with nonseparable leisure and consumption, to price the cross-section of U.S. equity returns over the 1948–2015 period. The stochastic discount factor features innovations to future leisure and consumption growth as factors. The model performs well, in terms of a variety of criteria, relative to competing models in explaining the cross-section of the spread in size and value portfolios. |
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| Keywords: | Epstein-Zin utility Long-run risk Leisure Vector autoregression G12 G17 N22 |
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