New study reveals key to predicting stock returns accurately!
The (C)CAPM models were tested to see if they could explain stock returns better when considering changing risk levels. By using the log consumption-wealth ratio as a factor, the conditional models performed better than unconditional ones and similarly to the Fama-French three-factor model. The conditional consumption CAPM could explain the difference in returns between low and high book-to-market portfolios without showing leftover size or book-to-market effects.