Séminaire

The Consumption Risk of Bonds and Stocks

Christian Julliard (London School of Economics)

27 novembre 2017, 12h30–14h00

Salle MF 323

Fédération des Banques Françaises Seminar

Résumé

Aggregate consumption growth reacts slowly, but significantly, to bond and stock return innovations. As a consequence, slow consumption adjustment (SCA) risk, measured by the reaction of consumption growth cumulated over many quarters following a return, can explain most of the cross-sectional variation of expected bond and stock returns. Moreover, SCA shocks explain about a quarter of the time series variation of consumption growth, a large part of the time series variation of stock returns, and a significant (but small) fraction of the time series variation of bond returns, and have substantial predictive power for future consumption growth.

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