Question
which of the following statements on consumption-based asset pricing are correct? 1. The power utility model predicts that the variance of consumption growth is positively
which of the following statements on consumption-based asset pricing are correct?
1. The power utility model predicts that the variance of consumption growth is positively related to the risk-free rate.
2. Assets that perform well when marginal utility is high should earn lower expected returns.
3. In the data, consumption growth is smooth with low standard deviation relative to stock returns.
4. In the data, the sharpe ratio of the market portfolio is about 50% per year. This implies the standard deviation of any valid stochastic discount factor that can explain the equity risk premium puzzle must be less than 50%
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