Asset Returns and Intertemporal Preferences
Shmuel Kandel (deceased)
Robert F. Stambaugh
University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)
NBER Working Paper No. w3633
A representative-agent model with time-varying moments of consumption growth is used to analyze implications about means and volatilities of asset returns as well as the predictability of asset returns for various investment horizons. A comparative-statics analysis using non-expected-utility preferences indicates that, although risk aversion is important in determining the means of both equity returns and interest rates, implications about the volatility and the predictability of equity returns are affected primarily by intertemporal substitution. Lower elasticities of intertemporal substitution are associated with greater variance in the temporary component of equity prices.
Number of Pages in PDF File: 48
Date posted: December 28, 2006
© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo3 in 0.297 seconds