Consumption Risk and the Cross Section of Expected Returns
with C. Julliard, Journal of Political Economy, Vol 113 No 1, (February 2005) 185-222.
This paper evaluates the central insight of the consumption capital asset pricing model that an asset's expected return is determined by its equilibrium risk to consumption. Rather than measure risk by the contemporaneous covariance of an asset's return and consumption growth, we measure risk by the covariance of an asset's return and consumption growth cumulated over many quarters following the return. While contemporaneous consumption risk explains little of the variation in average returns across the 25 Fama-French portfolios, our measure of ultimate consumption risk at a horizon of three years explains a large fraction of this variation.
The electronic version or the pdf file from the JPE. A draft from March 2004.
The old version of the paper is available as NBER Working Paper 9538, March 2003, and you can download the complete programs and data for replication of NBER WP version.