Equity premium under multiple background risks
AbstractIn a static Lucas's tree economy, we explore the effect of two types of background risk, uninsurable risk for labor income and miscalibrated risk for payoff distribution of risky asset, on the equilibrium price of the risky asset. Then we analyze the data of U.S. stock market and GDP growth rates during 1871-2004 to verify that our simple static model could provide appropriate magnitudes of equity premium.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 30 (2010)
Issue (Month): 2 ()
Contact details of provider:
equity premium; static Lucas model; background risk; equilibrium price;
Find related papers by JEL classification:
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- D5 - Microeconomics - - General Equilibrium and Disequilibrium
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Finn, M.G. & Hoffman, D.L. & Schlagenhauf, D.E., 1988.
"Intertemporal Asset-Pricing Relationships In Barter And Monetary Economies: An Empirical Analysis,"
UWO Department of Economics Working Papers, University of Western Ontario, Department of Economics
8805, University of Western Ontario, Department of Economics.
- Finn, Mary G. & Hoffman, Dennis L. & Schlagenhauf, Don E., 1990. "Intertemporal asset-pricing relationships in barter and monetary economies An empirical analysis," Journal of Monetary Economics, Elsevier, Elsevier, vol. 25(3), pages 431-451, June.
- Finn, M.G. & Hoffman, D.L. & Schlagenhauf, D.E., 1989. "Intertemporal Asset-Pricing Relationships In Barter And Monetary Economies: An Empirical Analysis," RCER Working Papers 208, University of Rochester - Center for Economic Research (RCER).
- Weil, P., 1991.
"Equilibrium Asset Prices with Undiversifiable Labor Income Risk,"
Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research
1564, Harvard - Institute of Economic Research.
- Weil, Philippe, 1992. "Equilibrium asset prices with undiversifiable labor income risk," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 16(3-4), pages 769-790.
- Philippe Weil, 1992. "Equilibrium Asset Prices With Undiversifiable Labor Income Risk," NBER Working Papers 3975, National Bureau of Economic Research, Inc.
- Pindyck, Robert S., 1986.
"Risk aversion and determinants of stock market behavior,"
Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management
1801-86., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Pindyck, Robert S, 1988. "Risk Aversion and Determinants of Stock Market Behavior," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 183-90, May.
- Robert S. Pindyck, 1986. "Risk Aversion and Determinants of Stock Market Behavior," NBER Working Papers 1921, National Bureau of Economic Research, Inc.
- Merton, Robert C., 1980.
"On estimating the expected return on the market : An exploratory investigation,"
Journal of Financial Economics, Elsevier,
Elsevier, vol. 8(4), pages 323-361, December.
- Robert C. Merton, 1980. "On Estimating the Expected Return on the Market: An Exploratory Investigation," NBER Working Papers 0444, National Bureau of Economic Research, Inc.
- Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, Econometric Society, vol. 46(6), pages 1429-45, November.
- Harris Schlesinger & Christian Gollier, 2001.
"Changes in Risk and Asset Prices,"
CESifo Working Paper Series
443, CESifo Group Munich.
- Klock, Mark & Phillips, Robert F, 1999. " A Model of Return Volatility with Application to Estimating Relative Risk Aversion," Review of Quantitative Finance and Accounting, Springer, Springer, vol. 13(3), pages 249-60, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John P. Conley).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.