Concentrated Ownership and Equilibrium Asset Prices
I study the dynamics of asset prices in an economy in which investors choose whether to hold diversified or concentrated portfolios of risky assets. The latter are valuable, as they increase the productivity of the correspond- ing enterprises. I capture the tradeoff between risk sharing and productivity gains by introducing what I call â€œactive capitalâ€ : people who participate in such investments are restricted in their outside opportunities but receive extra compensation. In equilibrium, active and standard capital coexist. The willingness to provide active capital is mainly determined by risk considerations. Therefore, the quantity of active capital fluctuates jointly with risk premia, amplifying their variations. As a consequence, the price of volatility risk exposure can be large and return volatility is mainly induced by fluctuations in future expected returns. These results are particularly strong when fundamental volatility is low, because at such time, a large number of concentrated owners are likely to exit their positions and sell off their assets.
|Date of creation:||2012|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
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- John Y. Campbell, 2001.
"Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk,"
Journal of Finance,
American Finance Association, vol. 56(1), pages 1-43, 02.
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- Malkiel, Burton & Campbell, John & Lettau, Martin & Xu, Yexiao, 2001. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," Scholarly Articles 3128707, Harvard University Department of Economics.
- Ravi Bansal & Amir Yaron, 2004. "Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles," Journal of Finance, American Finance Association, vol. 59(4), pages 1481-1509, 08.
- Ravi Bansal & Amir Yaron, 2000. "Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles," NBER Working Papers 8059, National Bureau of Economic Research, Inc.
- Tobias Adrian & Emanuel Moench & Hyun Song Shin, 2010. "Macro Risk Premium and Intermediary Balance Sheet Quantities," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 58(1), pages 179-207, August.
- Tobias Adrian & Emanuel Moench & Hyun Song Shin, 2010. "Macro risk premium and intermediary balance sheet quantities," Staff Reports 428, Federal Reserve Bank of New York.
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