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research article

Asset Pricing When 'This Time Is Different'

Collin-Dufresne, Pierre  
•
Johannes, Michael
•
Lochstoer, Lars A.
2017
Review Of Financial Studies

Recent evidence suggests that younger people update beliefs in response to aggregate shocks more than older people. We embed this generational learning bias in an equilibrium model in which agents have recursive preferences and are uncertain about exogenous aggregate dynamics. The departure from rational expectations is statistically modest, but generates high average risk premiums varying at generational frequencies, a positive relation between past returns and agents' future return forecasts, and substantial and persistent over-and undervaluation. Consistent with the model, the price-dividend ratio is empirically more sensitive to macroeconomic shocks when the fraction of young in the population is higher.

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Type
research article
DOI
10.1093/rfs/hhw084
Web of Science ID

WOS:000397254300004

Author(s)
Collin-Dufresne, Pierre  
Johannes, Michael
Lochstoer, Lars A.
Date Issued

2017

Publisher

Oxford Univ Press Inc

Published in
Review Of Financial Studies
Volume

30

Issue

2

Start page

505

End page

538

Editorial or Peer reviewed

REVIEWED

Written at

EPFL

EPFL units
SFI-PCD  
Available on Infoscience
May 1, 2017
Use this identifier to reference this record
https://infoscience.epfl.ch/handle/20.500.14299/136649
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