Heterogeneous Preferences, Investment, and Asset Pricing

41 Pages Posted: 16 Dec 2016 Last revised: 26 Apr 2019

See all articles by Bo Liu

Bo Liu

University of Electronic Science and Technology of China (UESTC)

Lei Lu

Asper School of Business, University of Manitoba

congming mu

Shanghai University of Finance and Economics

Jinqiang Yang

Shanghai University of Finance and Economics

Date Written: April 21, 2019

Abstract

We present a production-based model in which agents have heterogeneous risk aversion and heterogeneous discount rates. When the less risk-averse agent is more impatient, the two types of agents can coexist for a long time. The heterogeneity in risk aversion and discount rate induces the wealth share of less risk averse agent to be procyclical, while it leads Tobin's q and the investment-capital ratio to be countercyclical. We also nd that the heterogeneity in risk aversion and discount rate leads to more efficient risk sharing and reduces the volatility of stock returns.

Keywords: Heterogeneous risk aversion, heterogeneous discount rates, investment

JEL Classification: D9, G11, G12

Suggested Citation

Liu, Bo and Lu, Lei and mu, congming and Yang, Jinqiang, Heterogeneous Preferences, Investment, and Asset Pricing (April 21, 2019). Available at SSRN: https://ssrn.com/abstract=2886148 or http://dx.doi.org/10.2139/ssrn.2886148

Bo Liu

University of Electronic Science and Technology of China (UESTC) ( email )

No.4, Section 2, North Jianshe Road
Chengdu
China

Lei Lu (Contact Author)

Asper School of Business, University of Manitoba ( email )

181 Freedman Crescent
Winnipeg, Manitoba R3T 5V4
Canada

Congming Mu

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Jinqiang Yang

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, P.R.China, AK Shanghai 200433
China

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
106
Abstract Views
683
rank
264,379
PlumX Metrics