Comparing Consumption-based Asset Pricing Models: Evidence from Brazil

This study offers a novel contribution by systematically comparing five consumption-based asset pricing models using both conditional and unconditional Hansen–Jagannathan distances applied to Brazilian market data. In addition to the traditional CRRA, habit formation and recursive Epstein–Zin preferences, we incorporate alternative specifications such as the saving-CAPM and preferences with labor income, rarely explored in Brazilian empirical finance studies. We estimate the structural parameters of each model and formally evaluate their performance through these distance metrics. Our findings reveal that the recursive utility model provides the best empirical fit among the alternatives considered. Furthermore, we find no evidence of the equity premium puzzle in Brazil throughout the analyzed period. These results contribute to the literature by offering new insights into asset pricing dynamics in emerging markets.