Quantitative Asset Pricing Implications of Endogenous Solvency Constraints
AbstractWe study the asset pricing implications of an economy where solvency constraints are determined to efficiently deter agents from defaulting. We present a simple example for which efficient allocations and all equilibrium elements are characterized analytically. The main model produces large equity premia and risk premia for long term bonds with low risk aversion and a plausibly calibrated income process. We characterize the deviations from independence of aggregate and individual income uncertainty that produce equity and term premia.
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 InfoPaper provided by Wharton School Rodney L. White Center for Financial Research in its series Rodney L. White Center for Financial Research Working Papers with number 10-99.
Date of creation:
Date of revision:
Contact details of provider:
Postal: 3254 Steinberg Hall-Dietrich Hall, Philadelphia, PA 19104-6367
Phone: (215) 898-7616
Fax: (215) 573-8084
Web page: http://finance.wharton.upenn.edu/~rlwctr/
More information through EDIRC
Other versions of this item:
- Alvarez, Fernando & Jermann, Urban J, 2001. "Quantitative Asset Pricing Implications of Endogenous Solvency Constraints," Review of Financial Studies, Society for Financial Studies, vol. 14(4), pages 1117-51.
- Fernando Alvarez & Urban J. Jermann, 1999. "Quantitative asset pricing implications of endogenous solvency constraints," Working Papers 99-5, Federal Reserve Bank of Philadelphia.
- Fernando Alvarez & Urban J. Jermann, 1999. "Quantitative Asset Pricing Implications of Endogenous Solvency Constraints," NBER Working Papers 6953, National Bureau of Economic Research, Inc.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
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.:
- Hua He and David M. Modest., 1992.
"Market Frictions and Consumption-Based Asset Pricing,"
Research Program in Finance Working Papers
RPF-223, University of California at Berkeley.
- He, Hua & Modest, David M, 1995. "Market Frictions and Consumption-Based Asset Pricing," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 94-117, February.
- Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 1997.
"Informal Insurance Arrangements in Village Economies,"
Keele Department of Economics Discussion Papers (1995-2001)
97/08, Department of Economics, Keele University, revised Oct 2000.
- Ethan Ligon & Jonathan P Thomas & Tim Worrall, 1997. "Informal Insurance Arrangements in Village Economies," CRIEFF Discussion Papers 9705, Centre for Research into Industry, Enterprise, Finance and the Firm.
- Backus, David K. & Gregory, Allan W. & Zin, Stanley E., 1989.
"Risk premiums in the term structure : Evidence from artificial economies,"
Journal of Monetary Economics,
Elsevier, vol. 24(3), pages 371-399, November.
- David K. Backus & Allan W. Gregory & Stanley E. Zin, 1986. "Risk Premiums in the Term Structure : Evidence from Artificial Economies," Working Papers 665, Queen's University, Department of Economics.
- R. Mehra & E. Prescott, 2010.
"The equity premium: a puzzle,"
Levine's Working Paper Archive
1401, David K. Levine.
- John H. Cochrane & Lars Peter Hansen, 1992.
"Asset Pricing Explorations for Macroeconomics,"
in: NBER Macroeconomics Annual 1992, Volume 7, pages 115-182
National Bureau of Economic Research, Inc.
- Timothy J. Kehoe & David K. Levine, 1992.
"Debt constrained asset markets,"
445, Federal Reserve Bank of Minneapolis.
- Kjetil Storesletten & Chris Telmer & Amir Yaron, . "Persistent Idiosyncratic Shocks and Incomplete Markets," GSIA Working Papers 24, Carnegie Mellon University, Tepper School of Business.
- Philippe Weil, 1992.
"Equilibrium Asset Prices With Undiversifiable Labor Income Risk,"
NBER Working Papers
3975, National Bureau of Economic Research, Inc.
- Weil, Philippe, 1992. "Equilibrium asset prices with undiversifiable labor income risk," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 769-790.
- Weil, P., 1991. "Equilibrium Asset Prices with Undiversifiable Labor Income Risk," Harvard Institute of Economic Research Working Papers 1564, Harvard - Institute of Economic Research.
- Krusell, Per & Smith, Anthony A., 1997.
"Income And Wealth Heterogeneity, Portfolio Choice, And Equilibrium Asset Returns,"
Cambridge University Press, vol. 1(02), pages 387-422, June.
- Per Krusell & Anthony A. Smith, Jr., . "Income and Wealth Heterogeneity, Portfolio Choice, and Equilibrium Asset Returns," GSIA Working Papers 1997-45, Carnegie Mellon University, Tepper School of Business.
- Heaton, John & Lucas, Deborah J, 1996.
"Evaluating the Effects of Incomplete Markets on Risk Sharing and Asset Pricing,"
Journal of Political Economy,
University of Chicago Press, vol. 104(3), pages 443-87, June.
- John Heaton & Deborah Lucas, 1993. "Evaluating the Effects of Incomplete Markets on Risk Sharing and Asset Pricing," NBER Working Papers 4249, National Bureau of Economic Research, Inc.
- Luttmer, Erzo G J, 1996. "Asset Pricing in Economies with Frictions," Econometrica, Econometric Society, vol. 64(6), pages 1439-67, November.
- Narayana Kocherlakota, 2010.
"Implications of Efficient Risk Sharing Without Commitment,"
Levine's Working Paper Archive
2053, David K. Levine.
- Kocherlakota, Narayana R, 1996. "Implications of Efficient Risk Sharing without Commitment," Review of Economic Studies, Wiley Blackwell, vol. 63(4), pages 595-609, October.
- Telmer, Chris I, 1993.
" Asset-Pricing Puzzles and Incomplete Markets,"
Journal of Finance,
American Finance Association, vol. 48(5), pages 1803-32, December.
- Fernando Alvarez & Urban J. Jermann, 1998.
"Asset Pricing when Risk Sharing is Limited by Default,"
NBER Working Papers
6476, National Bureau of Economic Research, Inc.
- Fernando Alvarez & Urban J Jermann, 2010. "Asset Pricing When Risk Sharing is Limited by Default," Levine's Working Paper Archive 1898, David K. Levine.
- Mankiw, N. Gregory, 1986.
"The equity premium and the concentration of aggregate shocks,"
Journal of Financial Economics,
Elsevier, vol. 17(1), pages 211-219, September.
- N. Gregory Mankiw, 1987. "The Equity Premium and the Concentration of Aggregate Shocks," NBER Working Papers 1788, National Bureau of Economic Research, Inc.
- repec:cup:macdyn:v:1:y:1997:i:2:p:387-422 is not listed on IDEAS
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel).
If references are entirely missing, you can add them using this form.