Date of this Version
Journal of Monetary Economics
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 nonexpectedutility 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.
© 1991. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/.
Kandel, S., & Stambaugh, R. F. (1991). Asset Returns and Intertemporal Preferences. Journal of Monetary Economics, 27 (1), 39-71. http://dx.doi.org/10.1016/0304-3932(91)90004-8
Date Posted: 27 November 2017
This document has been peer reviewed.