This paper studies the type of consumption that, despite its economic relevance, is unaccounted for in aggregate measures and thus ignored in most consumption-based models. The study denotes this latent consumption priceless given that it cannot be bought or sold for any amount of money. Although not directly observable, priceless consumption can be identified through its heterogeneous effects across different consumption categories. The research proposes a structural estimation methodology to recover a priceless consumption series from the joint dynamics of the components of aggregate consumption. The estimation results show that priceless consumption is a large and volatile portion of total consumption. The findings provide supporting evidence for the validity of the consumption-based CAPM by showing that its performance markedly improves once we account for the priceless consumption.
Professor Andre Donangelo is an Assistant Professor of Finance at the McCombs School of Business, the University of Texas at Austin. His primary research interest is in the area of asset pricing. His research includes work on the risk transmission between workers and firms and on the interaction between product market competition and stock returns. His articles have been published in the top finance journals, such as the Journal of Finance, the Review of Financial Studies, and the Journal of Financial Economics. Professor Donangelo holds a bachelors degree in Production Engineering and a masters degree in Finance from the Federal University of Rio de Janeiro and a PhD degree in Finance from the University of California at Berkeley.