Seasonally Varying Preferences: Theoretical Foundations for an Empirical Regularity

Mark J. Kamstra, Lisa Kramer, Maurice Levi and Tan Wang

The Review of Asset Pricing Studies, 2014, vol. 4, issue 1, 39-77

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.

JEL-codes: E44 G11 G12 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (13)

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