The Review of Asset Pricing Studies Vol. 4 No. 1 2014
Seasonally Varying Preferences: Theoretical Foundations for an Empirical Regularity
open access
Abstract
We investigate an asset pricing model with preferences cycling between high risk aversion and low EIS in fall/winter and the reverse in spring/summer. Calibrating to consumption data and allowing plausible preference parameter values, we produce returns that match observed equity and Treasury returns across the seasons: risky returns are higher and risk-free returns are lower or stable in fall/winter, and they reverse in spring/summer. Further, risky returns vary more than risk-free returns. A novel finding is that both EIS and risk aversion must vary seasonally to match observed returns. Further, the degree of necessary seasonal change in EIS is small.
- DOI
- 10.1093/rapstu/rau002
- Volume
- 4
- Issue
- 1
- Pages
- 39-77
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib