Generational Asset Pricing, Equity Puzzles, and Cyclicality

47 Pages Posted: 16 Mar 2012 Last revised: 10 Jun 2016

See all articles by Alan Guoming Huang

Alan Guoming Huang

University of Waterloo

Eric N. Hughson

Claremont McKenna College - Robert Day School of Economics and Finance

J. Chris Leach

University of Colorado at Boulder - Department of Finance

Date Written: March 1, 2016

Abstract

To examine the potential role cohort preferences play in asset pricing cycles and puzzles, we consider a model with stochastic generational variation in preferences. In our structure, the pricing kernel reflects an investing generation’s consumption growth from mid-life to retirement rather than aggregate consumption’s growth over the same time period. Generational domination of the pricing kernel provides insight into rationalizing three widely-recognized asset pricing puzzles and suggests one potential contributor to boom-bust patterns in stock market returns.

Keywords: generational uncertainty, pricing kernel domination, equity premium puzzles, boom-bust cycle

JEL Classification: G12

Suggested Citation

Huang, Alan G. and Hughson, Eric N. and Leach, J. Chris, Generational Asset Pricing, Equity Puzzles, and Cyclicality (March 1, 2016). Review of Economic Dynamics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2023481 or http://dx.doi.org/10.2139/ssrn.2023481

Alan G. Huang (Contact Author)

University of Waterloo ( email )

School of Accounting and Finance
Waterloo, Ontario N2L 3G1
Canada
519-888 4567 ext. 36770 (Phone)

Eric N. Hughson

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States
909-607-3664 (Phone)

J. Chris Leach

University of Colorado at Boulder - Department of Finance ( email )

Campus Box 419
Boulder, CO 80309-0419
United States
303-492-5665 (Phone)
303-492-5962 (Fax)

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