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Asset Returns, Investment Horizons, and Intertemporal Preferences (Reprint 009)

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  • Shmuel Kandel
  • Robert F. Stambaugh

Abstract

A representative-agent pricing model with time-varying moments of consumption growth is used to analyze implications about means and volatilities of equity returns and interest rates, first-order autocorrelations of equity returns for various investment horizons, and R2’s in projections of equity returns for various horizons on predetermined financial variables. An analysis using non-expected-utility preferences reveals that high risk aversion is key in matching empirical benchmarks for average returns, but low intertemporal substitution is important in obtaining implications corresponding to estimates of volatilities, autocorrelations, and the predictability of returns.

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Bibliographic Info

Paper provided by Wharton School Rodney L. White Center for Financial Research in its series Rodney L. White Center for Financial Research Working Papers with number 07-90.

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Handle: RePEc:fth:pennfi:07-90

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Cited by:
  1. N. Gregory Mankiw & Stephen P. Zeldes, 1991. "The Consumption of Stockholders and Non-Stockholders," NBER Working Papers 3402, National Bureau of Economic Research, Inc.
  2. Larry G. Epstein & Stanley E. Zin, 1991. "The Independence Axiom and Asset Returns," NBER Technical Working Papers 0109, National Bureau of Economic Research, Inc.
  3. Peter Woehrmann & Willi Semmler & Martin Lettau, . "Nonparametric Estimation of the Time-varying Sharpe Ratio in Dynamic Asset Pricing Models," IEW - Working Papers 225, Institute for Empirical Research in Economics - University of Zurich.

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