Asset Pricing with Overlapping Generations and the Housing Market

This paper investigates a consumption-based asset pricing model in a three-period overlapping generations (OLG) setting. In each period, there is a representative agent from one of three age groups - young, middle-aged, and old. As the agent grows older, he becomes more risk averse. The consumption of the representative agents includes housing, and perishable goods and non-housing service. The higher risk aversion in the old cohort and the additional risk in the consumption composition may help to explain the risk-free rate puzzle and the risk premium puzzle with lower relative risk aversion.