Are Stocks Riskier over the Long Run? Taking Cues from Economic Theory
AffiliationUniv Arizona, McClelland Hall 315R
MetadataShow full item record
PublisherOXFORD UNIV PRESS INC
CitationDoron Avramov, Scott Cederburg, Katarína Lučivjanská; Are Stocks Riskier over the Long Run? Taking Cues from Economic Theory, The Review of Financial Studies, Volume 31, Issue 2, 1 February 2018, Pages 556–594, https://doi.org/10.1093/rfs/hhx079
JournalREVIEW OF FINANCIAL STUDIES
Rights© The Author 2017. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.
Collection InformationThis item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at email@example.com.
AbstractWe study whether stocks are riskier or safer in the long run from the perspective of Bayesian investors who employ the long-run risk, habit formation, or prospect theory models to form prior beliefs about return dynamics. Economic theory delivers important guidance for long-run investment opportunities. Specifically, incorporating prior information from the habit formation or prospect theory models reinforces beliefs in mean reversion and inferences that stocks are safer over longer horizons. Conversely, investors with long-run risk priors perceive weaker mean reversion and riskier equities. Model-based information is particularly important for inferences about uncertainty in the dividend growth component of returns.
Note24 month embargo: published online: 14 July 2017
VersionFinal accepted manuscript
SponsorsIsrael Science Foundation [233/14]; Slovak Scientific Grant Agency (VEGA grant) [1/0344/14]; Slovak Research and Development Agency [APVV-14-0357]