Equity premium under multiple background risks
In 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.
Volume (Year): 30 (2010)
Issue (Month): 2 ()
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