Asset prices and portfolio choice with learning from experience

Ehling, P, Graniero, A and Heyerdahl-Larsen, C (2018) Asset prices and portfolio choice with learning from experience. The Review Of Economic Studies, 85 (3). pp. 1752-1780. ISSN 0034-6527

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.

More Details

Item Type: Article
Subject Areas: Finance
Subjects: P > Portfolio investment
A > Assets
L > Learning
R > Risk
Date Deposited: 01 Nov 2017 16:54
Last Modified: 20 Apr 2019 18:12
URI: http://lbsresearch.london.edu/id/eprint/918
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