Essays on Asset Pricing of Consumption Price

Abstract

My dissertation presents essays related to asset pricing of consumption price. The first chapter Risk for Price: Using Generalized Demand System for Asset Pricing uses the detailed consumption price to measure stochastic discount factor in an economy with heterogeneous consumption sectors. Prices and total expenditure are sufficient statistics of consumer’s marginal utility, under general situation of consumer preference. Variations in prices and total expenditure more accurately describe the pricing kernel than the aggregate consumption quantity when consumer preference is non-homothetic. The second chapter Risk Exposure to Price: Asset Pricing of Sector Reallocation uses a parsimonious model to explain the propagation of capital-augmenting productivity shock in consumption price, labor share and consumption distribution in an economy with heterogeneous consumption sectors and limited stock market participation. Equity valuation increases with capital-augmenting productivity shock. One observes the negative risk exposure to price of goods among equity portfolios. Equity portfolios that demonstrate large risk exposure, have high average return.