Gomes, Francisco and Michaelides, Alexander (2007) Asset pricing with limited risk sharing and heterogeneous agents. 6136. Centre for Economic Policy Research, London, UK.
Full text not available from this repository.Abstract
We solve 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: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | http://www.cepr.org |
| Additional Information: | © 2007 Francisco J Gomes and Alexander Michaelides |
| Uncontrolled Keywords: | equity premium, incomplete risk sharing, life-cycle models, limited stock market participation and preference heterogeneity |
| Library of Congress subject classification: | H Social Sciences > HG Finance |
| 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 |
| Identification Number: | 6136 |
| URL: | http://eprints.lse.ac.uk/5360/ |
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