Asset Pricing with Fading Memory

Stefan Nagel and Zhengyang Xu

No 26255, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Building on evidence that lifetime experiences shape individuals' macroeconomic expectations, we study asset prices in an economy in which a representative agent learns with fading memory about unconditional mean endowment growth. With IID fundamentals, constant risk aversion, and memory decay calibrated to microdata, the model generates a high and strongly counter-cyclical objective equity premium, while the subjective equity premium is virtually constant. Consistent with this theory, experienced payout growth (a weighted average of past growth rates) is negatively related to future stock market excess returns and subjective expectations errors in surveys, and positively to analyst forecasts of long-run earnings growth.

JEL-codes: E03 G12 G4 (search for similar items in EconPapers)
Date: 2019-09
New Economics Papers: this item is included in nep-ore and nep-upt
Note: AP ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Published as Stefan Nagel & Zhengyang Xu & Stefano Giglio, 2022. "Asset Pricing with Fading Memory," The Review of Financial Studies, vol 35(5), pages 2190-2245.

Downloads: (external link)
http://www.nber.org/papers/w26255.pdf (application/pdf)

Related works:
Journal Article: Asset Pricing with Fading Memory (2022)
Working Paper: Asset Pricing with Fading Memory (2019)
Working Paper: Asset Pricing with Fading Memory (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:26255

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w26255

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().