A survey of the empirical difficulties of the consumption capital asset pricing models

摘要

In this paper, I review the empirical record of the ability of the canonical version of the consumption capital asset pricing model (CAPM), as well as its recent modifications, to account for the behavior of the expected excess stock returns. One distinguishing addition of the current survey is that it reveals an important feature of the expected excess returns: they have the tendency to undergo sign reversals. That is, there are extended periods of time in which they are significantly negative and other periods of time in which they are significantly positive. Any empirically relevant model must explain this key feature, which is largely ignored in the literature. In testing the empirical validity of the consumption CAPM, most researchers focus on accounting for the historical average of the excess returns. The inability of the model to explain the historical average of the excess stock returns with a plausible degree of risk aversion is called the equity premium puzzle. This failure of the canonical model has led researchers to search for alternative specifications of preferences. Some researchers also consider irrationality. Although these modifications perform better in calibration exercises, they fail to explain the behavior of excess returns when confronted directly with the time series data. The empirical studies also pay little attention to accounting for the time variation of ex ante excess returns.