Abstract

https://ssrn.com/abstract=1787762
 
 

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Seasonally Varying Preferences: Theoretical Foundations for an Empirical Regularity


Mark J. Kamstra


York University - Schulich School of Business

Lisa A. Kramer


University of Toronto - Rotman School of Management

Maurice D. Levi


University of British Columbia (UBC) - Sauder School of Business

Tan Wang


University of British Columbia (UBC) - Division of Finance; China Academy of Financial Research (CAFR)

January 1, 2014

AFA 2012 Chicago Meetings Paper

Abstract:     
We investigate an asset pricing model with preferences cycling between high risk aversion and low EIS in fall/winter and the reverse in spring/summer. Calibrating to consumption data and allowing plausible preference parameter values, we produce returns that match observed equity and Treasury returns across the seasons: risky returns are higher and risk-free returns are lower or stable in fall/winter, and they reverse in spring/summer. Further, risky returns vary more than risk-free returns. A novel finding is that both EIS and risk aversion must vary seasonally to match observed returns. Further, the degree of necessary seasonal change in EIS is small.

Number of Pages in PDF File: 61

Keywords: Time-varying preferences, time-varying expected returns, stock returns, SAD, Treasury-bill returns, equity premium

JEL Classification: E44, G11, G12


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Date posted: March 23, 2011 ; Last revised: January 31, 2014

Suggested Citation

Kamstra, Mark J. and Kramer, Lisa A. and Levi, Maurice D. and Wang, Tan, Seasonally Varying Preferences: Theoretical Foundations for an Empirical Regularity (January 1, 2014). AFA 2012 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1787762 or http://dx.doi.org/10.2139/ssrn.1787762

Contact Information

Mark J. Kamstra
York University - Schulich School of Business ( email )
4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
Lisa A. Kramer (Contact Author)
University of Toronto - Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6
Canada
416-978-2496 (Phone)
416-971-3048 (Fax)
HOME PAGE: http://www.chass.utoronto.ca/~lkramer

Maurice David Levi
University of British Columbia (UBC) - Sauder School of Business ( email )
2053 Main Mall
Henry Angus 865
Vancouver BC V6T 1Z2
Canada
604-822-8260 (Phone)
604-822-8521 (Fax)
Tan Wang
University of British Columbia (UBC) - Division of Finance ( email )
2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-9414 (Phone)
604-822-8521 (Fax)
China Academy of Financial Research (CAFR)
1954 Huashan Road
Shanghai P.R.China, 200030
China

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