Asset Prices and Portfolio Choice with Learning from Experience
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Date
2017-12-20
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Abstract
We study asset prices and portfolio choice with overlapping generations, where the young disregard history to learn from own experience. Disregarding history implies less precise estimates of output growth, which in equilibrium leads the young to increase their investment in risky assets after positive returns, that is, they act as trend chasers. In equilibrium, the risk premium decreases after a positive shock and, therefore, trend chasing young agents lose wealth relative to old agents who behave as contrarians. Consistent with findings from survey data, the average belief about the risk premium in the economy relates negatively to future excess returns and is smoother than the true risk premium.
Description
This record is for a(n) postprint of an article published in The Review of Economic Studies on 2017-12-20; the version of record is available at https://doi.org/10.1093/restud/rdx077.
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Citation
Ehling, Paul, et al. "Asset Prices and Portfolio Choice with Learning from Experience." The Review of Economic Studies, vol. 85, no. 3, pp. 1752-1780, 2017-12-20, https://doi.org/10.1093/restud/rdx077.
Journal
The Review of Economic Studies