Articlegreen2001

How Does the Spirit of Capitalism Affect Stock Market Prices?

55 citations0/0 files storedReview of Financial Studies

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Financial Markets and Investment Strategies Stochastic processes and financial applications Economic theories and models

Abstract

Bakshi and Chen (1996b) suggest that the spirit of capitalism affects stock prices by increasing society’s aversion to risk. In this article, I show that the way in which the spirit of capitalism impinges upon asset prices depends on the interaction of impatience, willingness to substitute over time, and ordinal preferences between consumption and status, in addition to risk aversion. I develop a general model that charts the channels through which the spirit of capitalism affects asset prices. An increase in the capitalist spirit may increase or decrease risk aversion, and may actually decrease the prices of risky assets.

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References

1971Optimum consumption and portfolio rules in a continuous-time model 1969Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case 1978Asset Prices in an Exchange Economy 1989Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework 1991Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis 1976The Valuation of Uncertain Income Streams and the Pricing of Options 1988THE EQUITY PREMIUM PUZZLE AND THE RISK-FREE RATE PUZZLE 1992Stochastic Differential Utility

Cited by

2006Disentangling risk aversion and intertemporal substitution through a reference level 2010Precautionary Saving and Endogenous Labor Supply With and Without Intertemporal Expected Utility 2022Warm-glow investment and the underperformance of green stocks 2009The Spirit of Capitalism, Precautionary Savings, and Consumption 2016STATUS PREFERENCE AND THE EFFECTS OF PATENT PROTECTION: THEORY AND EVIDENCE 2007Benchmarks in Aggregate Household Portfolios

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