Common Stocks as Hedges Against Shifts in the Consumption or Investment Opportunity Set

This paper contains an investigation of the potential for using NYSE stocks as hedges against changes in the consumption investment opportunity set. We perform this investigation under two characterizations of a multiperiod or generalized capital asset pricing model. We find sufficient cross-section...

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Bibliographic Details
Published in:The Journal of business (Chicago, Ill.) Ill.), 1981-04, Vol.54 (2), p.305-328
Main Authors: Schipper, Katherine, Thompson, Rex
Format: Article
Language:English
Subjects:
Analytical forecasting
Beta
Capital assets
Coefficients
Common stock
Consumption
Covariance
Covariance matrices
Financial portfolios
GNP
Gross National Product
Hedging
Investment return rates
Investments
Investors
Portfolio investments
Portfolio management
Pricing
Statistical analysis
Stocks
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Summary:This paper contains an investigation of the potential for using NYSE stocks as hedges against changes in the consumption investment opportunity set. We perform this investigation under two characterizations of a multiperiod or generalized capital asset pricing model. We find sufficient cross-sectional dispersion in common stock return covariances with unanticipated changes in real GNP, the price level, and aggregate consumption that hedge portfolios offer meaningful hedging potential in the portfolio-information period. The positive hedging potential persists out of the portfolio-information period, but is strongly significant only for consumption.
ISSN:0021-9398
1537-5374
DOI:10.1086/296132