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Asset Pricing with Heterogeneous Agents and Non-Tradeable Assets

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  • Miguel Cantillo Simon

    (Universidad de Costa Rica)

Abstract

This paper develops a tractable asset pricing framework based on an Arrow Debreu economy with heterogeneous agents. The assumption of heterogeneity recasts the market rather than aggregate consumption as the key element for pricing securities. The model expresses some asset pricing relationships in terms of four underlying variables. It develops a new formulation for the market risk premium and the earnings price ratio.The theoretical results are used to estimate preference parameters, which yield a value of relative risk aversion between 1.3 and 1.9, and a time preference discount rate between 2.8% and 4.6% per year.

Suggested Citation

  • Miguel Cantillo Simon, 2019. "Asset Pricing with Heterogeneous Agents and Non-Tradeable Assets," Working Papers 201907, Universidad de Costa Rica, revised Dec 2019.
    • Handle: RePEc:fcr:wpaper:201907
    as

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    References listed on IDEAS

    as
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