Consumption Volatility Risk
- Author(s): OLIVER BOGUTH, LARS‐ALEXANDER KUEHN
- Published: Nov 12, 2013
- Pages: 2589-2615
- DOI: 10.1111/jofi.12058
We show that time variation in macroeconomic uncertainty affects asset prices. Consumption volatility is a negatively priced source of risk for a wide variety of test portfolios. At the firm level, exposure to consumption volatility risk predicts future returns, generating a spread across quintile portfolios in excess of 7% annually. This premium is explained by cross‐sectional differences in the sensitivity of dividend volatility to consumption volatility. Stocks with volatile cash flows in uncertain aggregate times require higher expected returns.