This paper investigtes testable restrictious on tke thoe-series behavi0r of consumption and asset returns implicd by a representative agent model with the sPirit ofcaptalism in which intertemporal preference is represented by a utility function that generalizes.conventional, time-additive, expected utility. In the recundve structure of preference,the author extalnes the lmplication for cosumptions, portfolio holdings, and stock-marketptices wken investors accumulate wealth not only for the sake of c0nsumption but alsofor wealth-induced social status. When investors care about relative sodal status, thepropensity to consume and risk-taking behavior wh depend on social standards, and stochprices will be volatible. Hence, the spirit of capitaliam seems to be a driving force behind stock-market volatility and economic growth. Because the elasticity of substitutionand the coefficient of relative risk averaiou are independent and the spirit of capitalism isintroduced, the equity prendum puzzle can be partially explained in the model.
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