Unfiltered Consumption Research Articles

Asset Pricing With Data Revisions

This paper documents the asset pricing implications of the data release process of National Income and Product Accounts (NIPA) consumption expenditure. We show that initial consumption data releases are more suitable for asset pricing than final revised releases. This is because most revisions smooth out important short-term consumption growth fluctuations. This also explains the documented success of non-revised proposals like garbage and electricity and unfiltered consumption which recover these lost short-term fluctuations. Yet, first revisions specifically incorporate novel information and their magnitude is strongly linked to uncertainty about consumption growth. On this basis, we formulate a new consumption-based model, the Revised CCAPM, which incorporates these effects from the release process using only NIPA vintage data. It explains a striking 75% of the cross-sectional variation in average returns on the 25 size-value portfolios, including a large part of the value premium, when featuring the first data release and state-dependent uncertainty coming from first revisions. These effects are consistent with investors' state-dependent ambiguity attitudes and are priced in the financial market as such.

Asset Pricing With and Without Garbage: Resurrecting Aggregate Consumption

This paper challenges the view that alternative consumption measures (e.g., garbage, fourth quarter, unfiltered consumption) can address the empirical shortcomings of consumption-based asset pricing. Instead, we show that testing alternative consumption processes is a triple hypothesis problem, which, in addition to finding the most accurate consumption measure, requires specifying and estimating the dynamics of consumption growth and testing the functional form of investor preferences. The existing literature tends to make strong assumptions on consumption dynamics (i.i.d.) and investor preferences (CRRA). We show that relaxing these assumptions leads to different results regarding the fit and preference parameters of the various consumption measures.