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Shaking the tree: an agency-theoretic model of asset pricing

  • Jamsheed Shorish

    ()

  • Stephen E. Spear

    ()

In this paper, we develop an agency-theoretic extension of the Lucas asset pricing model and examine the resulting asset price dynamics. In the model, an agent of the firm can expand or contract the firm’s output and dividend payments in response to exogenous shocks, although expansions become increasingly costly for the agent to maintain. Analysis of numerical simulations shows that the time-series of equilibrium asset prices exhibits both significant time-varying conditional heteroskedasticity, and longer memory persistence. Copyright Springer-Verlag Berlin Heidelberg 2005

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File URL: http://hdl.handle.net/10.1007/s10436-004-0001-8
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Article provided by Springer in its journal Annals of Finance.

Volume (Year): 1 (2005)
Issue (Month): 1 (01)
Pages: 51-72

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Handle: RePEc:kap:annfin:v:1:y:2005:i:1:p:51-72
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=112370

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  1. Granger, C. W. J., 1980. "Long memory relationships and the aggregation of dynamic models," Journal of Econometrics, Elsevier, vol. 14(2), pages 227-238, October.
  2. Francis X. Diebold & Marc Nerlove, 1986. "The dynamics of exchange rate volatility: a multivariate latent factor ARCH model," Special Studies Papers 205, Board of Governors of the Federal Reserve System (U.S.).
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  4. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
  5. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
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  7. Stock, James H., 1987. "Measuring Business Cycle Time," Scholarly Articles 3425950, Harvard University Department of Economics.
  8. Stock, James H, 1987. "Measuring Business Cycle Time," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1240-61, December.
  9. Jewitt, Ian, 1988. "Justifying the First-Order Approach to Principal-Agent Problems," Econometrica, Econometric Society, vol. 56(5), pages 1177-90, September.
  10. Alberto Giovannini, 1987. "Uncertainty and Liquidity," NBER Working Papers 2296, National Bureau of Economic Research, Inc.
  11. William A. Brock, 1982. "Asset Prices in a Production Economy," NBER Chapters, in: The Economics of Information and Uncertainty, pages 1-46 National Bureau of Economic Research, Inc.
  12. Benoit Mandelbrot, 1963. "The Variation of Certain Speculative Prices," The Journal of Business, University of Chicago Press, vol. 36, pages 394.
  13. Giovannini, Alberto, 1989. "Uncertainty and liquidity," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 239-258, March.
  14. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
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