SAFE Research Seminar: Christian Schlag (SAFE and Goethe University)
Title: Non-substitutable consumption growth risk (joint with Robert F. Dittmar, University of Michigan, and Julian Thimme, KIT)
Speaker: Christian Schlag, SAFE and Goethe University
Abstract: Standard applications of the consumption-based asset pricing model make the assumption that goods and services within the nondurable consumption bundle are substitutes. We estimate substitution elasticities between different consumption bundles and show that households cannot substitute energy consumption by consumption of other nondurable goods or services. As a consequence, energy consumption shows up as a separate factor in the pricing kernel. Cross-sectional variation in energy consumption betas explains a large part of the value premium. Value stocks are typically more energy-intensive than growth stocks and thus riskier, since they suffer more from the oil supply shocks that also affect households.
We will send the link shortly before the seminar. Registration is not required.