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Heterogeneity and limited stock market Participation

Listed author(s):
  • Aase, Knut K.

    ()

    (Dept. of Business and Management Science, Norwegian School of Economics)

We derive the equilibrium interest rate and risk premiums using recursive utility with heterogeneity in a continuous time model. We solve the associated sup-convolution problem, and obtain explicit closed form solutions. The heterogeneous two-agent model is calibrated to the data of Mehra and Prescott (1985) assuming the market portfolio is not a proxy of the wealth portfolio. This results in plausible values for the preference parameters of the two agents under various assumptions for the wealth portfolio.

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File URL: http://hdl.handle.net/11250/281075
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Paper provided by Department of Business and Management Science, Norwegian School of Economics in its series Discussion Papers with number 2014/5.

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Length: 36 pages
Date of creation: 28 Feb 2014
Date of revision: 25 Mar 2015
Handle: RePEc:hhs:nhhfms:2014_005
Contact details of provider: Postal:
NHH, Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway

Phone: +47 55 95 92 93
Fax: +47 55 95 96 50
Web page: http://www.nhh.no/en/research-faculty/department-of-business-and-management-science.aspx
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