Advanced Search
MyIDEAS: Login to save this paper or follow this series

Bond and Stock Returns in a Simple Exchange Model

Contents:

Author Info

  • John Y. Campbell

Abstract

In this paper I analyze a simple "representative agent" exchange model of general equilibrium, and derive closed form solutions for returns on stocks and real and nominal bonds. The model restricts the representative agent's utility function to be time-separable with isoelastic period utility, and the endowment to be conditionally lognormal. These assumptions allow me to examine a general stationary stochastic process for the log of the endowment. Money and nominal prices are modelled by means of a Clower constraint. Risk premia on stocks and real and nominal discount bonds are simple functions of the coefficient of relative risk aversion, the variance of the innovation to the log endowment, and the weights in the moving average representation of the log endowment. One-period holding premia on real bonds may be positive or negative, but the limit as maturity increases is positive. When the money supply is deterministic, stocks and nominal bonds are perfect substitutes. Their expected returns to maturity are higher than those on real bonds of equal maturity, but need not be higher over other holding periods. Nominal interest rates vary positively with prices (the "Gibson paradox") if the coefficient of relative risk aversion is greater than one. In the last section of the paper I consider random shocks to the agent's utility function. These shocks may generate risk premia even when the agent is risk-neutral.

Download Info

If 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.
File URL: http://www.nber.org/papers/w1509.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1509.

as in new window
Length:
Date of creation: Mar 1987
Date of revision:
Publication status: published as Campbell, John Y. "Bond and Stock Returns in a Simple Exchange Model," Quarterly Journal of Economics," Vol. 101, No. 4, (November 1986) pp. 785-803.
Handle: RePEc:nbr:nberwo:1509

Note: ME
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

References

References listed on IDEAS
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.:
as in new window
  1. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  2. Lucas, Robert Jr., 1982. "Interest rates and currency prices in a two-country world," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 335-359.
  3. Michener, Ron, 1984. "Permanent income in general equilibrium," Journal of Monetary Economics, Elsevier, vol. 13(3), pages 297-305, May.
  4. Michener, Ronald W, 1982. "Variance Bounds in a Simple Model of Asset Pricing," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 166-75, February.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1509. See general 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: ().

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.