2026-09-19T10:59:43Zhttps://dspace.mit.edu/server/oai/requestoai:dspace.mit.edu:1721.1/1269732023-09-21T13:31:39Zcom_1721.1_7582com_1721.1_7581col_1721.1_131023
Jonathan A. Parker.
Cole, Allison(Business management scientist) (Allison Taylor)Massachusetts Institute of Technology.
Sloan School of Management.
Sloan School of Management
2020-09-03T16:46:22Z
2020-09-03T16:46:22Z
2020
2020
https://hdl.handle.net/1721.1/126973
1191221879
Thesis: S.M. in Management Research, Massachusetts Institute of Technology, Sloan School of Management, May, 2020
Cataloged from the official PDF of thesis.
Includes bibliographical references (pages 51-56).
This paper examines cyclical dynamics of idiosyncratic consumption risk using consumption data from the Nielsen Consumer Panel and the Panel Study of Dynamic Income. With GMM estimates and supplemental graphical analysis, I show that the idiosyncratic risk in consumption is i) highly persistent, with an autocorrelation coefficient near unity ii) strongly countercyclical, with the conditional variance rising by an average of 25 percent from peak to trough. Compared to previous findings on income dynamics, I show that the variance of idiosyncratic consumption risk is also countercyclical, but less so. Moreover, I do not find that consumption risk displays procyclical skewness, as has been shown with income risk. Furthermore, in a simple asset-pricing framework, the estimated countercyclical cross-sectional variance of consumption raises the equity premium by 4.1 percent from the representative-agent case, using a risk aversion of only 10-15.
by Allison Cole.
S.M. in Management Research
S.M.inManagementResearch Massachusetts Institute of Technology, Sloan School of Management
112 pages
eng
Massachusetts Institute of Technology
MIT theses may be protected by copyright. Please reuse MIT thesis content according to the MIT Libraries Permissions Policy, which is available through the URL provided.
http://dspace.mit.edu/handle/1721.1/7582
Sloan School of Management.
Cyclical dynamics in idiosyncratic consumption risk
Thesis
application/pdf
2020-09-03T16:46:22Z
Publication
Master
Sloan
unknown
unknown
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<Abstract>This paper examines cyclical dynamics of idiosyncratic consumption risk using consumption data from the Nielsen Consumer Panel and the Panel Study of Dynamic Income. With GMM estimates and supplemental graphical analysis, I show that the idiosyncratic risk in consumption is i) highly persistent, with an autocorrelation coefficient near unity ii) strongly countercyclical, with the conditional variance rising by an average of 25 percent from peak to trough. Compared to previous findings on income dynamics, I show that the variance of idiosyncratic consumption risk is also countercyclical, but less so. Moreover, I do not find that consumption risk displays procyclical skewness, as has been shown with income risk. Furthermore, in a simple asset-pricing framework, the estimated countercyclical cross-sectional variance of consumption raises the equity premium by 4.1 percent from the representative-agent case, using a risk aversion of only 10-15.</Abstract>
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