Generational Asset Pricing, Equity Puzzles, and Cyclicality
47 Pages Posted: 16 Mar 2012 Last revised: 10 Jun 2016
Date Written: March 1, 2016
To examine the potential role cohort preferences play in asset pricing cycles and puzzles, we consider a model with stochastic generational variation in preferences. In our structure, the pricing kernel reflects an investing generation’s consumption growth from mid-life to retirement rather than aggregate consumption’s growth over the same time period. Generational domination of the pricing kernel provides insight into rationalizing three widely-recognized asset pricing puzzles and suggests one potential contributor to boom-bust patterns in stock market returns.
Keywords: generational uncertainty, pricing kernel domination, equity premium puzzles, boom-bust cycle
JEL Classification: G12
Suggested Citation: Suggested Citation