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Overlapping Generations and Representative Agent Models of the Equity Premia: Implications from a Growing Economy

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Kevin D. Salyer

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Abstract

This paper compares the risk premia on stock (both conditional and unconditional) implied by a class of overlapping generations and re presentative agent models in an exchange economy with stochastic endo wment growth rates. It is shown that, when shocks are independently d istributed, the models are observationally equivalent. However, with positively autocorrelated growth rates, the risk premia can become ne gative in a representative agent model, while bounded above zero in a n overlapping generations model. These results are interpreted via th e consumption-based capital asset pricing model and highlight the end ogenous consumption levels in an overlapping generations model.

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Publisher Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 21 (1988)
Issue (Month): 3 (August)
Pages: 565-78
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Handle: RePEc:cje:issued:v:21:y:1988:i:3:p:565-78

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  1. Catherine Norman & STEPHEN DECANIO & Lin Fan, 2007. "Opportunities and Challenges for the 20th Anniversary of the Montréal Protocol," University of California at Santa Barbara, Economics Working Paper Series 12-07, Department of Economics, UC Santa Barbara. [Downloadable!]
  2. Francisco Azeredo, 2007. "The Equity Premium: A Deeper Puzzle," University of California at Santa Barbara, Economics Working Paper Series 13-07, Department of Economics, UC Santa Barbara. [Downloadable!]
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