State variables, macroeconomic activity and the cross-section of indivdual stocks

I study whether risk premiums for ICAPM-motivated state variables are consistent with how these variables predict macroeconomic activity. I ?find that the state variable risk premiums in the cross-section of individual stocks are consistent with investor?s incentives to hedge against the systematic economic news that the state variables contain in the time-series. These risk premiums are not fully captured byexposure to the Fama-French-factors nor their underlying characteristics. My ?findings challenge recent portfolio-level evidence showing that risk premiums are inconsistent with investor?s incentives to hedge time-varying consumption-investment opportuni-ties and therefore the ICAPM.

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