3)Consumption-based asset pricing

A. Representative agent models, the equity premium puzzle, and the equity volatility puzzle

• Cochrane, Chapter 21.
• *Bansal, Ravi and Amir Yaron, 2004, �Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles�, Journal of Finance 59: 1481-1509.
• Barro, Robert, 2006, � Rare Disasters and Asset Markets in the Twentieth Century�, Quarterly Journal of Economics 121:823-866
• *Campbell, John Y., Consumption-Based Asset Pricing, forthcoming in George Constantinides, Milton Harris, and Rene Stulz eds., Handbook of the Economics of Finance, North-Holland, 2003. Littauer library reserve.
• *Campbell, John Y. and John H. Cochrane, 1999, By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior, Journal of Political Economy 107:205-251.
• Constantinides, George, 1990, Habit Formation: A Resolution of the Equity Premium Puzzle, Journal of Political Economy 98:519-543.
• [Epstein, Larry G. and Stanley E. Zin, 1991, Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis, Journal of Political Economy 99:263-286.]
• Giovannini, Alberto and Phillipe Weil, 1989, �Risk Aversion and Intertemporal Substitution in the Capital Asset Pricing Model� NBER, Working Paper 2824
• Lettau, Martin, Sydney C. Ludvigson, and Jessica A. Wachter, 2006, "The Declining Equity Premium: What Role Does Macroeconomic Risk Play?", forthcoming Review of Financial Studies.
• *Martin, Ian, 2007, � Consumption-Based Asset Pricing with Higher Cumulants�, unpublished paper, Harvard University.
• [Mehra, Rajnish and Edward Prescott, 1985, The Equity Premium: A Puzzle, Journal of Monetary Economics 15:145-161.]

 

B. Heterogeneous agents

• Brav, Alon, George Constantinides, and Christopher Geczy, 2002, " Asset Pricing with Heterogeneous Consumers and Limited Participation: Empirical Evidence", Journal of Political Economy 110.
• *Constantinides, George M. and Darrell Duffie, 1996, Asset Pricing with Heterogeneous Consumers, Journal of Political Economy 104:219-240.
• *Constantinides, George M., John B. Donaldson, and Rajnish Mehra, 2002, Junior Can't Borrow: A New Perspective on the Equity Premium Puzzle, Quarterly Journal of Economics 117:269-296.
• [Grossman, Sanford J. and Robert J. Shiller, 1982, " Consumption Correlatedness and Risk Measurement in Economies with Non-Traded Assets and Heterogeneous Information", Journal of Financial Economics 10:195-210.]
• Garleanu, Nicolae and Stavros Panageas, 2007, �Young, Old, Conservative and Bold: The Implications of Heterogeneity and Finite Lives for Asset Pricing�, unpublished paper, University of Pennsylvania.
• Kocherlakota, Narayana and Luigi Pistaferri, 2007, �Asset Pricing Implications of Pareto Optimality with Private Information�, unpublished paper, Federal Reserve Bank of Minneapolis and Stanford University.
• Vissing-Jorgensen, Annette, 2002, " Limited Asset Market Participation and the Elasticity of Intertemporal Substitution", Journal of Political Economy 110:825-853.

　

C. Consumption risk and the cross-section of stock returns

• Cochrane, John, Francis Longstaff, and Pedro Santa-Clara, 2007, � Two Trees�, forthcoming Review of Financial Studies
• Jagannathan, Ravi and Yong Wang, 2007, � Lazy Investors, Discretionary Consumption, and the Cross Section of Stock Returns�, Journal of Finance 62: 1623-1661.
• Lettau, Martin, and Sydney Ludvigson, 2001, � Resurrecting the (C)CAPM: A Cross-Sectional Test when Risk Premia are Time Varying�, Journal of Political Economy 109:1238-1286.
• *Parker, Jonathan and Christian Julliard, 2005, � Consumption Risk and Cross-Sectional Returns�, Journal of Political Economy 113:185-222.
• *Yogo, Motohiro, 2006, � A Consumption-Based Explanation of Expected Stock Returns�, Journal of Finance 61, 539-580.