Does the momentum effect arise naturally from the determination of asset prices in market equilibrium? We calibrate a standard endowment model of multiple assets under recursive preferences. The momentum effect partly comes from investors' aversion to consumption risks. An unexpected dividend...

Recent financial studies often assume agents have Epstein and Zin (1989) preferences, preferences which require agents to care about when uncertainty is resolved. Under this “recursive-preference” framework, the preference for uncertainty resolution is entirely determined by an agent's...