We study asset prices and portfolio choice with overlapping generations, where the young disregard history to learn from own experience. Disregarding history implies less precise estimates of output growth, which in equilibrium leads the young to increase their investment in risky assets after...

We study an economy with a CEO who trades off the incentive to divert funds, which leads to underinvestment, against the incentive to overinvest based on his optimism. In equilibrium, we see overinvestment relative to what the shareholder or a social planner would implement but underinvestment...

We show theoretically that inflation disagreement drives a wedge between real and nominal yields and raises their levels and volatilities. We demonstrate empirically that an inflation disagreement increase of one standard deviation raises real and nominal yields and their volatilities,...

With overlapping generations and heterogeneous risk aversion there is no unique relation between aggregate risk aversion and the real rate of interest, and this type of endogenous “noise” cannot arise in an economy where agents live forever. Our framework accommodates many agent types and...

Correlations of equity securities have varied substantially over time and remain a source of continuing policy debate. This paper studies stock market correlations in an equilibrium model with heterogeneous risk aversion. In the model, preference heterogeneity causes countercyclical variations...

When experience and a noisy signal shape expectation formation across cohorts in a constrained rational fashion, a binding short-sale constraint interplays with beliefs to drive investors out of the stock market. Given beliefs, nonparticipation can be optimal for extended periods or lead to...