Fat Tails and Spurious Estimation of Consumption-Based Asset Pricing Models

This paper used to be a section of Toda & Walsh (2015). The idea is to use the model of Toda (2014) to construct a consumption-based asset pricing model that generates power law tails in the cross-sectional consumption distribution, and then use simulated data (for which we know the data generating process) to study the spurious estimation documented in Toda & Walsh (2015). The JPE editor asked us to cut this section to make the paper shorter, so we recycled it.