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

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  • Jamsheed Shorish

    ()

  • Stephen E. Spear

    ()

Abstract

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

Suggested Citation

  • Jamsheed Shorish & Stephen E. Spear, 2005. "Shaking the tree: an agency-theoretic model of asset pricing," Annals of Finance, Springer, vol. 1(1), pages 51-72, January.
  • Handle: RePEc:kap:annfin:v:1:y:2005:i:1:p:51-72
    DOI: 10.1007/s10436-004-0001-8
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    File URL: http://hdl.handle.net/10.1007/s10436-004-0001-8
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    Cited by:

    1. Bo Sun, 2009. "Asset returns with earnings management," International Finance Discussion Papers 988, Board of Governors of the Federal Reserve System (U.S.).
    2. Kelly David L. & Steigerwald Douglas G, 2004. "Private Information and High-Frequency Stochastic Volatility," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 8(1), pages 1-30, March.
    3. Jean-Pierre Danthine & John Donaldson, 2015. "Executive Compensation: A General Equilibrium Perspective," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(2), pages 269-286, April.
    4. Wagner, W.B., 2000. "Decentralized International Risk Sharing and Governmental Moral Hazard," Discussion Paper 2000-92, Tilburg University, Center for Economic Research.
    5. Francisco Azeredo, 2014. "The equity premium: a deeper puzzle," Annals of Finance, Springer, vol. 10(3), pages 347-373, August.

    More about this item

    Keywords

    Intra-firm dynamics; Agency theory; Asset pricing; Conditional heteroskedasticity; Long memory persistence; G12;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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