Asset Returns and Intertemporal Preferences

48 Pages Posted: 28 Dec 2006  

Shmuel Kandel (deceased)

Deceased

Robert F. Stambaugh

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Date Written: February 1991

Abstract

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.

Suggested Citation

Kandel (deceased), Shmuel and Stambaugh, Robert F., Asset Returns and Intertemporal Preferences (February 1991). NBER Working Paper No. w3633. Available at SSRN: https://ssrn.com/abstract=481465

Robert F. Stambaugh (Contact Author)

University of Pennsylvania - The Wharton School ( email )

The Wharton School, Finance Department
University of Pennsylvania
Philadelphia, PA 19104-6367
United States
215-898-5734 (Phone)
215-898-6200 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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