Consumption Asset Pricing with Stable Shocks: Exploring a Solution and Its Implications for the Equity Premium Puzzle
AbstractWe study the consumption based asset pricing model due to Lucas (1978). The exogenous endowment sequence is modeled as a linear stochastic process driven by stable shocks in an otherwise standard framework. The Gaussian process emerges as a special case. We derive exact analytical solutions for asset prices and returns, and provide conditions under which these exist. We also study the implications of the model for the equity premium puzzle.
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Bibliographic InfoPaper provided by Society for Computational Economics in its series Computing in Economics and Finance 2001 with number 70.
Date of creation: 01 Apr 2001
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Asset pricing; Lucas model; equity premium; normal distributions; stable distributions;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-05-02 (All new papers)
- NEP-FIN-2001-05-02 (Finance)
- NEP-FMK-2001-05-02 (Financial Markets)
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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