Empirical Tests of the Consumption‐Oriented CAPM

TLDR

The study examines the empirical implications of the consumption‑oriented CAPM and compares its performance to a market‑portfolio‑based model. The CCAPM is estimated after correcting for consumption measurement errors and tested using betas derived from both consumption and the portfolio most correlated with consumption. Results show a significantly positive market price of risk, a near‑zero real interest rate estimate, and comparable performance between the traditional CAPM and the CCAPM.

Abstract

ABSTRACT The empirical implications of the consumption‐oriented capital asset pricing model (CCAPM) are examined, and its performance is compared with a model based on the market portfolio. The CCAPM is estimated after adjusting for measurement problems associated with reported consumption data. The CCAPM is tested using betas based on both consumption and the portfolio having the maximum correlation with consumption. As predicted by the CCAPM, the market price of risk is significantly positive, and the estimate of the real interest rate is close to zero. The performances of the traditional CAPM and the CCAPM are about the same.