Gomes, Francisco and Michaelides, Alexander (2008) Asset pricing with limited risk sharing and heterogeneous agents. The review of financial studies, 21 (1). pp. 415-448. ISSN 0893-9454
Abstract
We develop a model with incomplete markets and heterogeneous agents that generates a large equity premium, while simultaneously matching stock market participation and individual asset holdings. The high risk-premium is driven by incomplete risk sharing among stockholders, which results from the combination of aggregate uncertainty, borrowing constraints, and a (realistically) calibrated life-cycle earnings profile subject to idiosyncratic shocks. We show that it is challenging to simultaneously match asset pricing moments and individual portfolio decisions, while limited participation has a negligible impact on the risk-premium, contrary to the results of models where it is imposed exogenously.
| Item Type: | Article |
|---|---|
| Official URL: | http://rfs.oxfordjournals.org |
| Additional Information: | © 2007 the author |
| Library of Congress subject classification: | H Social Sciences > HB Economic Theory |
| Journal of Economic Literature Classification System: | G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions |
| Sets: | Research centres and groups > Financial Markets Group (FMG) Collections > Economists Online Departments > Economics |
| Rights: | http://www.lse.ac.uk/library/rights/LSERO.htm |
| URL: | http://eprints.lse.ac.uk/4820/ |
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