Investments, tenth edition

Book-to-Market

Size

Low

Medium

High

Average annual excess returns* (%)

Small

6.19

12.24

17.19

Medium

6.93

10.43

13.94

Big

7.08

 8.52

9.5

Consumption beta*

Small

3.46

 4.26

5.94

Medium

2.88

 4.35

5.71

Big

3.39

 2.83

4.41

 Table 13.5 

 Annual excess returns and 

consumption betas 

  *Average annual excess returns on the 25 Fama-French portfolios from 1954 to 2003. 

Consumption betas estimated by the time series regression   

  R

i,t

 5 a

i

 1 b

i,c

g

ct

 1 e

i,t 

,

 where  R  

 i,  t 

  is the excess return over the risk-free rate, and  g  

 ct 

  is annual consumption growth 

calculated using fourth-quarter consumption data.  

 Source: Ravi Jagannathan and Yong Wang, “Lazy Investors, Discretionary Consumption, and the 

Cross-Section of Stock Returns,”  Journal of Finance  62 (August 2006), pp. 1623–61. 

38

 C. J. Malloy, T. Moskowitz, and A. Vissing-Jørgensen, “Long-Run Stockholder Consumption Risk and Asset 

Returns,”  Journal of Finance  64 (December 2009), pp. 2427–80. 

 Figure 13.7 

Cross section of stock returns: Fama-French 25 

portfolios, 1954–2003  

  Annual excess returns and consumption betas. This figure plots the average 

annual excess returns on the 25 Fama-French portfolios and their consumption 

betas. Each two-digit number represents one portfolio. The first digit refers to 

the size quintile (1  5  smallest, 5  5  largest), and the second digit refers to the 

book-to-market quintile (1  5  lowest, 5  5  highest).  

Excess Returns (%)

0

1

2

Consumption Betas

3

4

5

6

7

8

10

8

52

41

31

21

11

51

42

53

22

54

55

3233

43

13

44

34

23

24

14

25

15

35

1245

6

4

2

0

20

18

16

14

12

bod61671_ch13_414-444.indd   437

bod61671_ch13_414-444.indd   437

7/17/13   3:47 PM

7/17/13   3:47 PM

Final PDF to printer

---

438 

P A R T   I I I

  Equilibrium in Capital Markets