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Asset Returns and Intertemporal Preferences

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Listed author(s):
  • Shmuel Kandel
  • Robert F. Stambaugh

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.

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File URL: http://www.nber.org/papers/w3633.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3633.

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Date of creation: Feb 1991
Publication status: published as Journal of Monetary Economics, Vol. 27 No. 1, pp. 39-71, February 1991.
Handle: RePEc:nbr:nberwo:3633
Note: ME
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  10. repec:fth:harver:1533 is not listed on IDEAS
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  23. Selden, Larry, 1978. "A New Representation of Preferences over "Certain A Uncertain" Consumption Pairs: The "Ordinal Certainty Equivalent" Hypothesis," Econometrica, Econometric Society, vol. 46(5), pages 1045-1060, September.
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