Consumption Volatiliyt,Valuation Ratio And Cash Flow Growth

Risk aversion,as one of the most important assumptions of asset pricing,has long been widely concerned by academics.Especially in the study of asset pricing,the market’s attitude towards risk has a profound impact on asset valuation.In the study of asset pricing,the use of consumption volatility to measure economic uncertainty has profound economic significance and is therefore widely used.The economic uncertainty here is the measurement of risk.In the specific study,the choice of different consumption categories,the choice of different calculation methods and the choice of different calculation periods will affect the calculation of consumption volatility.How to choose the appropriate consumption type,calculation method and calculation period to calculate the consumption volatility,and whether there is a difference between the calculated consumption volatility in measuring economic uncertainty,and further,under different calculation methods,the attitude of financial market towards risky,consistency of the attitudes are all research questions with important practical and theoretical significance.This paper uses price-dividend ratio and price-earning ratio as valuation ratio,measures economic uncertainty by consumption volatility and market return volatility,using US consumption data from 1959 to 2016 to study the relationship among valuation ratio,economic uncertainty and cash flow growth.It is found that(1)economic uncertainty and valuation ratio can predict each other.Specifically,consumption volatility can effectively predict valuation ratio.As the lag of the calculated consumption volatility increases,the prediction effect of consumption volatility on valuation ratio improves.In the meantime,valuation ratio can effectively predict consumption volatility.(2)valuation ratio can effectively predict the cash flow growth.Concretely,valuation ratio can effectively predict the growth of market return,and price-earning ratio has a good predictive effect on the earnings growth.As the forecast period increases,the forecast effect of valuation ratio on market return improves.The paper has carried out a detailed and comprehensive discussion about consumption volatility constructed by different consumption categories.The results show that the consumption sequence constructed by non-durable goods consumption expenditure plusing service expenditure in financial research can not reflect economic uncertainty very well.It shows that durable goods consumption expenditures and service expenditures are more reflective of economic uncertainty,and their consumption volatility is determined by some consumption subclass respectively.The research carefully explores the differences in economic uncertainty among different consumption categories,making up for the gaps in the existing literature,and providing corresponding research guides for later studies researching different consumption volatilities in the future,buiding a good foundation for further studies.