Consumption-based Asset Pricing Models: Empirical Performance

Fatih Guvenen, University of Minnesota
Hanno Lustig, University of California at Los Angeles

Abstract

Asset pricing is a branch of financial economics that is rich in puzzles and anomalies - that is, stylized empirical facts not easily explained by the canonical asset pricing models. These range from the equity premium puzzle and the risk-free rate puzzle to the fact that stock returns are highly predictable. This entry discusses different consumption based asset pricing models that have been developed to resolve these puzzles and it evaluates their empirical performance.