Title: Household consumption smoothing through equity investment in the USA and Japan: an empirical examination of the consumption-capital asset pricing model (C-CAPM)

Authors: Kusdhianto Setiawan

Addresses: Graduate School of Economics, Hiroshima University of Economics, Gion 5-37-1, Asaminami, 731-0192 Hiroshima, Japan; Faculty of Economics and Business, Universitas Gadjah Mada, Jl. Sosio Humaniora 1, Bulaksumur, 55281 Yogyakarta, Indonesia

Abstract: The C-CAPM is examined-based on a constant relative risk aversion utility function. The subjective discount rate (beta) and coefficient of risk aversion (gamma) are estimated by recursive generalised method of moments estimation over the 1987:12-2010:7 period for the USA and Japan. In contrast with previous empirical research, the findings show that the C-CAPM fits well for both countries yet for different time periods (1987:12-1996:11 and 1987:12-2001:1 for the USA and Japan respectively). However, during the sample period, the gamma coefficient estimated for the USA was high (above eight) compared with that for Japan (around one). I also find that there is no relationship between USA stock market returns and Japanese household consumption. Parameter stability tests are also performed for the model estimated using the full sample and breakpoints were found in the models.

Keywords: asset pricing model; risk aversion; consumption smoothing; household consumption; equity investment; USA; United States; Japan; consumption-CAPM; capital asset pricing model; C-CAPM; discount rate; stock market returns.

DOI: 10.1504/IJEBR.2014.057955

International Journal of Economics and Business Research, 2014 Vol.7 No.1, pp.72 - 103

Received: 08 May 2021
Accepted: 12 May 2021

Published online: 17 Oct 2013 *

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