In search of preference shock risks: Evidence from longevity risks and momentum profits

• 成果类型: Article
• 署名作者: Chen, Zhanhui; Yang, Bowen
• 署名单位: Nanyang Technological University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2019.01.004
• 发表日期: 2019
• 页码: 225-249
• 关键词: Time-preference shocks; Longevity risk; MOMENTUM PROFITS; Equity durations; Consumption-based models

摘要

Time-preference shocks affect agents' preferences for assets with different durations. We consider longevity risk as a source of time-preference shocks and model it in the recursive preferences setting. This implies a consumption-based three-factor model, including longevity risk, consumption growth rate, and the market portfolio, where longevity has a negative price of risk. Empirically, this model explains many well-known cross-sectional portfolios. Notably, we find that longevity risk and the momentum factor share a common business cycle component, i.e., short-run consumption risks. Prior winners (losers) provide hedging against mortality (longevity) risk and thus have higher (lower) expected returns, because winners have higher dividend growth and shorter equity durations than losers. Time-varying longevity risk captures most momentum profits over time, including the large momentum crashes observed in the data. (C) 2019 Elsevier B.V. All rights reserved.