Asset Prices and Portfolio Choice with Learning from Experience

We study asset prices and portfolio choice with overlapping generations where the young disregard history to learn from own experience. Disregarding history implies less precise estimates of consumption growth, which, in equilibrium, leads the young to increase their investment in risky assets after positive returns or act as trend chasers and to lose wealth to the old. Consistent with findings from survey data, the average belief about expected returns in the economy relates negatively to future realized returns and is smoother than objective expected returns. Having especially bad experiences early on in life, cause persistent disagreement and tilt portfolio weights.