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Shaking the Tree: An Agency Theoretic Model of Asset Pricing

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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.

Suggested Citation

  • Jamsheed Shorish & Stephen Spear, "undated". "Shaking the Tree: An Agency Theoretic Model of Asset Pricing," GSIA Working Papers 2003-E19, Carnegie Mellon University, Tepper School of Business.
    • Handle: RePEc:cmu:gsiawp:-1602558152
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    Cited by:

    1. Bo Sun, 2014. "Asset Returns Under Periodic Revelations Of Earnings Management," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(1), pages 255-282, February.
    2. Bo Sun, 2009. "Asset returns with earnings management," International Finance Discussion Papers 988, Board of Governors of the Federal Reserve System (U.S.).
    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. 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.
    6. Francisco Azeredo, 2014. "The equity premium: a deeper puzzle," Annals of Finance, Springer, vol. 10(3), pages 347-373, August.
    7. Wagner, W.B., 2000. "Decentralized International Risk Sharing and Governmental Moral Hazard," Other publications TiSEM e1835d1b-f90b-4907-be6c-1, Tilburg University, School of Economics and Management.

    More about this item

    JEL classification:

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

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