Catching Up with the Joneses

Heterogeneous Preferences and the Dynamics of Asset Prices

Datos Bibliográficos

ID10177408
AutoresYeung Lewis Chan, Leonid Kogan (0000-0002-1195-6636, Massachusetts Institute of Technology)
Año2002
Volumen110
Número6
Páginas1255-1285
Fecha de publicación2002-12-01
Peer ReviewedSí
Open AccessNo
TipoARTICLE
RevistaJournal of Political Economy (JOURNAL)
Identificadores de la revistaISSN: 0022-3808 • E-ISSN: 1537-534X
EditorialUniversity of Chicago Press (PUBLISHER • US)
DOI10.1086/342806
OpenAlexW3125208590
IdiomaEN
Citas recibidas6
Referencias citadas41

We analyze a general equilibrium exchange economy with a continuum of agents who have "catching up with the Joneses" preferences and differ only with respect to the curvature of their utility functions. While individual risk aversion does not change over time, dynamic redistribution of wealth among the agents leads to countercyclical time variation in the Sharpe ratio of stock returns. We show that both the conditional risk premium and the return volatility are negatively related to the level of stock prices. Therefore, our model exhibits many of the empirically observed properties of aggregate stock returns, for example, patterns of autocorrelation in returns, the "leverage effect" in return volatility, and long-horizon return predictability

Autocorrelation · Capital asset pricing model · Econometrics · Economics · Financial economics · Growth model · Keeping up with the Joneses · Microeconomics · Monetary economics · Predictability · Sharpe ratio · Stock (firearms · Volatility (finance · Complex Systems and Time Series Analysis · Economic theories and models · Financial Markets and Investment Strategies · Mathematics