Tail risk and the consumption CAPM

I examine if the market tail risk can be the conditioning information for consumption-based asset pricing model. While cay, Lettau and Ludvigson's (2001) conditioning variable, no longer works in the extended sample period, I find that Value at Risk (VaR) is the conditioning variable that enables consumption CAPM to explain substantial variation of cross-section of stock returns. Asset's riskiness is determined by the correlation with consumption growth conditional on the tail risk of the aggregate market.