Heterogeneity in Financial Market Participation: Appraising its Implications for the C-CAPM
This paper presents empirical evidence that accounting for heterogeneity in financial market participation is important for evaluating the empirical performance of the Consumption-based Capital Asset Pricing Model (C-CAPM). Using the U.S. Consumer Expenditure Survey as a common testing ground, I re-assess three well-known characterizations of the 'equity premium puzzle': (i) the inconsistency of the representative agent's IMRS with Hansen and Jagannathan bounds; (ii) Mehra and Prescott's calibration of a large representative agent's risk aversion; (iii) Hansen and the Singleton's large structural estimates of the preference parameters based on aggregate data. In all three cases, the estimates of risk aversion conditional upon financial market participation are not as far from reasonable values as the corresponding unconditional ones. The differences suggest that part of the 'equity premium puzzle' can be accounted for by the use of a 'representative agent' assumption rather than a more appropriate 'representative stockholding agent' assumption. Copyright 2004, Oxford University Press.
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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 8 (2004)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://springerlink.metapress.com/link.asp?id=111870|
When requesting a correction, please mention this item's handle: RePEc:kap:eurfin:v:8:y:2004:i:3:p:445-480. 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: (Sonal Shukla)or (Rebekah McClure)
If references are entirely missing, you can add them using this form.