An alternative representation of the C-CAPM with higher-order risks

Georges DIONNE*, Jingyuan LI, Cédric OKOU

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)peer-review


This paper exploits the concept of expectation dependence to propose an alternative representation of the consumption-based capital asset pricing model (C-CAPM). While the first-degree expectation dependence (FED) drives the C-CAPM’s riskiness for a risk-averse investor, the second-degree expectation dependence (SED) is required to account for the downside risk faced by a prudent investor. Theoretical and empirical assessments reveal that the expectation dependence-based C-CAPM can realistically match equity and variance risk premia. The consumption SED risk emerges as a fundamental source of uncertainty driving asset prices.

Original languageEnglish
Number of pages40
JournalGENEVA Risk and Insurance Review
Early online date5 Jun 2023
Publication statusE-pub ahead of print - 5 Jun 2023

Bibliographical note

We are indebted to the editors Alexander Muermann and Casey Rothschild and two anonymous referees for very helpful comments. We thank Louis Eeckhoudt, Carole Bernard, and Bruno Feunou for fruitful discussions. This contribution is free of any conflicts of interest, including all financial and non-financial interests and relationships.


  • C-CAPM
  • Expectation dependence
  • Higher-order risk
  • equity risk premium
  • variance risk premium

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