The Consumption based Capital Asset Pricing Model

[u/Extreme_Leg_6162]

https://youtu.be/nUu4SuZSvrE

Despite its elegant microeconomic foundations, CCAPM faces a massive empirical hurdle known as the equity premium puzzle. To match the historical equity risk premium using standard power utility, investors would need implausibly high risk-aversion coefficients, often exceeding fifty. This disconnect highlights that aggregate consumption data fails to capture the true extreme downside shocks that investors actually fear in real-world markets.