Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/129441
Authors: 
Curatola, Giuliano
Year of Publication: 
2016
Series/Report no.: 
SAFE Working Paper Series 128
Abstract: 
This paper introduces endogenous preference evolution into a Lucas-type economy and explores its consequences for investors' trading strategy and the dynamics of asset prices. In equilibrium, investors herd and hold the same portfolio of risky assets which is biased toward stocks of sectors that produce a socially preferred good. Price-dividend ratios, expected returns and return volatility are all time varying. In this way, preference evolution helps rationalize the observed under-performance and local biases of investors' portfolios and many empirical regularities of stock returns such a time variation, the value-growth effect and stochastic volatility.
Subjects: 
asset pricing
general equilibrium
heterogeneous investors
interdependent preferences
portfolio choice
JEL: 
D51
D91
E20
G12
Document Type: 
Working Paper

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