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Distribution Risk and Equity Returns

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Author Info
Jean-Pierre DANTHINE (University of Lausanne, FAME and CEPR)
John B. DONALDSON (Columbia University)
Paolo SICONOLFI (Columbia University)

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Abstract

In this paper we entertain the hypothesis that observed variations in income shares are the result of changes in the balance of power between workers and capital owners in labor relations. We show that this view implies that income share variations represent a risk factor of ¯rst-order importance for the owners of capital and, consequently, are a crucial determinant of the return to equity. When both risks are calibrated to observations, this distribution risk dominates in importance the usual systematic risk for the pricing of assets. We also show that distribution risks may originate in non-traded idiosyncratic income shocks.

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Publisher Info
Paper provided by International Center for Financial Asset Management and Engineering in its series FAME Research Paper Series with number rp161.

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Date of creation: Nov 2005
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Handle: RePEc:fam:rpseri:rp161

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Related research
Keywords: Income shares; Distribution risk; equity premium; limited market participation;

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Find related papers by JEL classification:
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
G1 - Financial Economics - - General Financial Markets

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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.:
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  3. Danthine, Jean-Pierre & Donaldson, John B. & Mehra, Rajnish, 1992. "The equity premium and the allocation of income risk," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 509-532. [Downloadable!] (restricted)
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  14. Dow, James Jr., 1995. "Real business cycles and labor markets with imperfectly flexible wages," European Economic Review, Elsevier, vol. 39(9), pages 1683-1696, December. [Downloadable!] (restricted)
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  17. Narayana R. Kocherlakota, 1996. "The Equity Premium: It's Still a Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 42-71, March. [Downloadable!] (restricted)
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  18. Boldrin, Michael & Horvath, Michael, 1995. "Labor Contracts and Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 972-1004, October. [Downloadable!] (restricted)
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  19. Danthine, Jean-Pierre & Donaldson, John B, 2002. "Labour Relations and Asset Returns," Review of Economic Studies, Blackwell Publishing, vol. 69(1), pages 41-64, January.
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Cited by:
(explanations, 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.)

  1. Jean-Pierre Danthine & Xiangrong Jin, 2007. "Intangible capital, corporate valuation and asset pricing," Economic Theory, Springer, vol. 32(1), pages 157-177, July. [Downloadable!] (restricted)
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