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  • Stock returns and consumption factors in the Australian market: Cross-sectional tests

    Author(s)
    Li, Bin
    Liu, Benjamin
    Roca, Eduardo
    Griffith University Author(s)
    Roca, Eduardo D.
    Liu, Benjamin
    Li, Bin
    Year published
    2011
    Metadata
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    Abstract
    We test conditional consumption capital asset pricing models (CCAPMs) in the Australian equity market. The conditional variables used are Lettau and Ludvigson's (2001a, b) consumption-wealth ratio, Campbell and Cochrane's (1999) surplus consumption ratio and Santos and Veronesi's (2006) labour income to consumption ratio. We examine the cross-sectional implications of these variables using the Fama-French 25 size and book-to-market portfolios and Australian industry portfolios. The Fama-MacBeth (1973) cross-sectional regressions on the 25 size/book-to-market portfolios show that the conditional models perform better than the ...
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    We test conditional consumption capital asset pricing models (CCAPMs) in the Australian equity market. The conditional variables used are Lettau and Ludvigson's (2001a, b) consumption-wealth ratio, Campbell and Cochrane's (1999) surplus consumption ratio and Santos and Veronesi's (2006) labour income to consumption ratio. We examine the cross-sectional implications of these variables using the Fama-French 25 size and book-to-market portfolios and Australian industry portfolios. The Fama-MacBeth (1973) cross-sectional regressions on the 25 size/book-to-market portfolios show that the conditional models perform better than the unconditional models. However, these conditional models cannot outperform the Fama-French three-factor model. The conditional CCAPM, with the labour income to consumption ratio as a scaling factor, can match more closely the performance of the Fama-French three-factor model. We also find that consumption growth is non-contemporaneously related to portfolio returns.
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    Journal Title
    Australian Journal of Management
    Volume
    36
    Issue
    2
    DOI
    https://doi.org/10.1177/0312896210394501
    Subject
    Commerce, management, tourism and services
    Finance
    Publication URI
    http://hdl.handle.net/10072/41056
    Collection
    • Journal articles

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