Topic: In Search of Preference Shock Risks: Evidence from Longevity Risks and Momentum Profits
Speaker: Zhanhui Chen, Assistant Professor, Nanyang Business School, Nanyang Technological University
Date: May 10th (Wednesday)
Location: Building 4, Room 101
Time-preference shocks affect agents' preferences for assets with different durations. We consider longevity risk as the sources 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 shorter equity durations than losers. Time-varying longevity risk captures most momentum profits over time, including the large momentum crashes observed in the data.
About the speaker:
Zhanhui Chen is an assistant professor at Nanyang Technological University, after receiving his Ph.D. in Finance from Texas A&M University in 2011. He also received his bachelor, master, and Ph.D. degrees from Tsinghua University. His research interests include theoretical and empirical asset pricing, in connection with corporate finance and macroeconomics. His research has been published in the Journal of Financial Economics and the Review of Financial Studies.