Empirical Tests of the Consumption-Oriented CAPM

Authors

  • DOUGLAS T. BREEDEN,

  • MICHAEL R. GIBBONS,

  • ROBERT H. LITZENBERGER

    Search for more papers by this author
    • Duke University; Stanford University and visiting the University of Chicago (1988–1989); and University of Pennsylvania, respectively. We are grateful for the comments we have received from seminar participants at a number of universities. Special thanks go to Eugene Fama, Wayne Ferson, Bruce Lehmann, Bill Schwert, Jay Shanken, Kenneth Singleton, René Stulz, and an anonymous referee. Over the years this paper has benefited also from research assistance by Susan Cheng, Hal Heaton, Chi-Fu Huang, Charles Jacklin, and Ehud Ronn. Financial support was provided in part to all authors by the Stanford Program in Finance. Breeden (1981–1982) and Gibbons (1982–1983) acknowledge with thanks financial support provided for this research by Batterymarch Financial Management.


ABSTRACT

The empirical implications of the consumption-oriented capital asset pricing model (CCAPM) are examined, and its performance is compared with a model based on the market portfolio. The CCAPM is estimated after adjusting for measurement problems associated with reported consumption data. The CCAPM is tested using betas based on both consumption and the portfolio having the maximum correlation with consumption. As predicted by the CCAPM, the market price of risk is significantly positive, and the estimate of the real interest rate is close to zero. The performances of the traditional CAPM and the CCAPM are about the same.

Ancillary