Equilibrium asset pricing in directed networks

Arbeitspapier

Directed links in cash flow networks a↵ect the cross-section of risk premia through three channels. In a tractable consumption-based equilibrium asset pricing model, we obtain closed-form solutions that disentangle these channels for arbitrary directed networks. First, shocks that can propagate through the economy command a higher market price of risk. Second, shock-receiving assets earn an extra premium since their valuation ratios drop upon shocks in connected assets. Third, a hedge e↵ect pushes risk premia down: when a shock propagates through the economy, an asset that is unconnected becomes relatively more attractive and its valuation ratio increases.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SAFE Working Paper ; No. 74

Classification and Topics

• Classification: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; Network Formation and Analysis: Theory
• Subject: Directed cash flow networks ; directed shocks ; mutually exciting processes ; recursive preferences

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Branger, Nicole ; Konermann, Patrick ; Meinerding, Christoph ; Schlag, Christian
• Event: Veröffentlichung
• (who): Leibniz Institute for Financial Research SAFE
• (where): Frankfurt a. M.
• (when): 2020

Further information

• DOI: doi:10.2139/ssrn.2521434
• Handle: http://hdl.handle.net/10419/225335
• Last update: 10.03.2025, 11:46 AM CET