{"id":538,"date":"2017-09-24T03:12:45","date_gmt":"2017-09-24T03:12:45","guid":{"rendered":"http:\/\/mitmgmtfaculty.mit.edu\/japarker\/?page_id=538"},"modified":"2025-02-20T18:27:39","modified_gmt":"2025-02-20T18:27:39","slug":"crisk-cross","status":"publish","type":"page","link":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/crisk-cross\/","title":{"rendered":"Summary: Consumption Risk and the Cross Section of Expected Returns"},"content":{"rendered":"<div id=\"pl-538\"  class=\"panel-layout\" ><div id=\"pg-538-0\"  class=\"panel-grid panel-no-style\" ><div id=\"pgc-538-0-0\"  class=\"panel-grid-cell\" ><div id=\"panel-538-0-0-0\" class=\"so-panel widget widget_mit-pf-wysiwyg widget_mit_pf_wysiwyg panel-first-child panel-last-child\" data-index=\"0\" ><div class=\"textwidget\"><h2>Consumption Risk and the Cross Section of Expected Returns<\/h2>\nwith C. Julliard, <em>Journal of Political Economy<\/em>, Vol 113 No 1, (February 2005) 185-222.\n\n<b>Abstract<\/b>\n\nThis paper evaluates the central insight of the consumption capital asset pricing model that an asset's expected return is determined by its equilibrium risk to consumption. Rather than measure risk by the contemporaneous covariance of an asset's return and consumption growth, we measure risk by the covariance of an asset's return and consumption growth cumulated over many quarters following the return. While contemporaneous consumption risk explains little of the variation in average returns across the 25 Fama-French portfolios, our measure of ultimate consumption risk at a horizon of three years explains a large fraction of this variation.\n\n<a href=\"http:\/\/www.journals.uchicago.edu\/doi\/full\/10.1086\/426042\" target=\"_blank\" rel=\"noopener noreferrer\">The electronic version<\/a>\u00a0and the <a href=\"http:\/\/mitsloan.mit.edu\/shared\/ods\/documents\/?DocumentID=4098\" target=\"_blank\" rel=\"noopener noreferrer\">PDF<\/a> from the JPE.\u00a0<a href=\"https:\/\/www.dropbox.com\/s\/cpc71is1pnfufll\/ParkerJulliard2004.pdf?dl=1\" target=\"_blank\" rel=\"noopener noreferrer\">A draft from March 2004.<\/a>\n\nThe old version of the paper is available as\u00a0<a href=\"http:\/\/papers.nber.org\/papers\/w9538\" target=\"_blank\" rel=\"noopener noreferrer\">NBER Working Paper 9538<\/a>, March 2003, and you can download the\u00a0<a href=\"https:\/\/www.dropbox.com\/s\/u9121crtdauhnuj\/Parker_Jullliard_Replication.zip?dl=1\" target=\"_blank\" rel=\"noopener noreferrer\">complete programs and data<\/a>\u00a0for replication of NBER WP version.<\/div><\/div><\/div><\/div><\/div>","protected":false},"excerpt":{"rendered":"<p>Consumption Risk and the Cross Section of Expected Returns with C. Julliard, Journal of Political Economy, Vol 113 No 1, (February 2005) 185-222. Abstract This paper evaluates the central insight of the consumption capital asset pricing model that an asset&#8217;s expected return is determined by its equilibrium risk to consumption. Rather than measure risk by [&hellip;]<\/p>\n","protected":false},"author":38,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"template-two-column.php","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"class_list":["post-538","page","type-page","status-publish","hentry"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.0 (Yoast SEO v25.8) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>MIT Sloan Faculty: Jonathan A. Parker | Consumption Risk<\/title>\n<meta name=\"description\" content=\"We measure risk by the covariance of an asset&#039;s return and consumption growth cumulated over many quarters following the return.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/crisk-cross\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Summary: Consumption Risk and the Cross Section of Expected Returns\" \/>\n<meta property=\"og:description\" content=\"We measure risk by the covariance of an asset&#039;s return and consumption growth cumulated over many quarters following the return.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/crisk-cross\/\" \/>\n<meta property=\"og:site_name\" content=\"Jonathan A. Parker\" \/>\n<meta property=\"article:modified_time\" content=\"2025-02-20T18:27:39+00:00\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"1 minute\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/crisk-cross\/\",\"url\":\"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/crisk-cross\/\",\"name\":\"MIT Sloan Faculty: Jonathan A. Parker | Consumption Risk\",\"isPartOf\":{\"@id\":\"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/#website\"},\"datePublished\":\"2017-09-24T03:12:45+00:00\",\"dateModified\":\"2025-02-20T18:27:39+00:00\",\"description\":\"We measure risk by the covariance of an asset's return and consumption growth cumulated over many quarters following the return.\",\"breadcrumb\":{\"@id\":\"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/crisk-cross\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/crisk-cross\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/crisk-cross\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Summary: Consumption Risk and the Cross Section of Expected Returns\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/#website\",\"url\":\"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/\",\"name\":\"Jonathan A. Parker\",\"description\":\"Jonathan A. Parker&#039;s Individual Faculty Page\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"}]}<\/script>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"MIT Sloan Faculty: Jonathan A. Parker | Consumption Risk","description":"We measure risk by the covariance of an asset's return and consumption growth cumulated over many quarters following the return.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/crisk-cross\/","og_locale":"en_US","og_type":"article","og_title":"Summary: Consumption Risk and the Cross Section of Expected Returns","og_description":"We measure risk by the covariance of an asset's return and consumption growth cumulated over many quarters following the return.","og_url":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/crisk-cross\/","og_site_name":"Jonathan A. Parker","article_modified_time":"2025-02-20T18:27:39+00:00","twitter_card":"summary_large_image","twitter_misc":{"Est. reading time":"1 minute"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/crisk-cross\/","url":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/crisk-cross\/","name":"MIT Sloan Faculty: Jonathan A. Parker | Consumption Risk","isPartOf":{"@id":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/#website"},"datePublished":"2017-09-24T03:12:45+00:00","dateModified":"2025-02-20T18:27:39+00:00","description":"We measure risk by the covariance of an asset's return and consumption growth cumulated over many quarters following the return.","breadcrumb":{"@id":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/crisk-cross\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/mitmgmtfaculty.mit.edu\/japarker\/crisk-cross\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/crisk-cross\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/"},{"@type":"ListItem","position":2,"name":"Summary: Consumption Risk and the Cross Section of Expected Returns"}]},{"@type":"WebSite","@id":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/#website","url":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/","name":"Jonathan A. Parker","description":"Jonathan A. Parker&#039;s Individual Faculty Page","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"}]}},"_links":{"self":[{"href":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/wp-json\/wp\/v2\/pages\/538","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/wp-json\/wp\/v2\/users\/38"}],"replies":[{"embeddable":true,"href":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/wp-json\/wp\/v2\/comments?post=538"}],"version-history":[{"count":15,"href":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/wp-json\/wp\/v2\/pages\/538\/revisions"}],"predecessor-version":[{"id":2657,"href":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/wp-json\/wp\/v2\/pages\/538\/revisions\/2657"}],"wp:attachment":[{"href":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/wp-json\/wp\/v2\/media?parent=538"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}