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Heterogeneity and Asset Prices: An Intergenerational Approach

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  • Nicolae Gârleanu
  • Stavros Panageas

Abstract

In an overlapping-generations economy, the consumption growth of a given cohort member (the “marginal agent”) differs from the aggregate consumption growth. A cohort member is faced with long-run consumption uncertainty even in the absence of aggregate (and within-cohort) consumption risk. This uncertainty allows the model to account for several stylized asset-pricing facts (high market price of risk and volatility, return predictability, low and nonvolatile interest rate) despite deterministic macroeconomic aggregates and inequality measures that are contemporaneously uncorrelated with asset returns. We devise and implement a methodology to measure the marginal agent’s consumption growth and evaluate the model’s quantitative implications.

Suggested Citation

  • Nicolae Gârleanu & Stavros Panageas, 2023. "Heterogeneity and Asset Prices: An Intergenerational Approach," Journal of Political Economy, University of Chicago Press, vol. 131(4), pages 839-876.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/722224
    DOI: 10.1086/722224
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