Abstract: This paper proposes a test of consumption-based asset pricing theory. We focus on two ancient shareholding corporations, the Bazacle and the Castel milling companies, as an experimental testbed. We collected the companies’ dividends and share prices from 1591 to 1788. We also collected the total quantity of grain milled in Toulouse as a proxy for investors’ consumption. We derive the main prediction of the consumption-based asset pricing theory, indicating that the price of an asset should equal the expected value of the future cash flow discounted using a stochastic discount factor (SDF). We test this main prediction by using the methodology proposed by Almeida and Garcia (2012) and Ghosh, Julliard, and Taylor (2016). We observe that the model-free SDF correlates with the model-implied one and with our measure of consumption. Moreover, a CRRA-based model is not rejected by the data for low risk aversion levels.

Bio: Sébastien Pouget is a Professor of Finance at the University of Toulouse and a member of the Toulouse School of Economics. He has taught asset management, corporate finance and behavioral finance at various institutions including New York University, Princeton University and Georgia State University. Prof. Pouget’s research studies financial markets’ inefficiencies by relying on insights and methods from economics, management, psychology, and history. Prof. Pouget’s research has been published in top international academic journals including Econometrica, the Journal of Finance, the Journal of Financial Economics, the Review of Financial Studies, and the Review of Economic Studies.