Professor Paul Ehling: Asset Prices and Portfolio Choice with Learning from Experience
Professor Paul Ehling (BI Norwegian Business School): Asset Prices and Portfolio Choice with Learning from Experience
We study asset prices and portfolio choice in an overlapping generations economy in which the young disregard history to learn from own experience. In equilibrium, the young act as trend chasers as they increase their investment in risky assets after a positive return. Since the young have less precise estimates of consumption growth they lose wealth and consumption shares to the old. Consistent with findings from survey data, the average belief about expected returns in the economy is negatively related to the true value for expected returns.