We analyze a general equilibrium exchange economy with a continuum of agents who have ``catching up with the Joneses'' preferences and differ only with respect to the curvature of their utility functions. While individual risk aversion does not change over time, dynamic re-distribution of wealth among the agents leads to countercyclical time variation in the Sharpe ratio of stock returns. We show that the level of stock prices is negatively related to both the conditional return volatility and the risk premium, as observed empirically. Therefore, our model also produces the correct sign for the slope coefficients in long-horizon predictive regressions. For comparison, otherwise similar representative agent economies with the same type of preferences exhibit counter-factual behavior of conditional moments of returns, i.e., a constant Sharpe ratio and procyclical risk premium and return volatility.