Asset Pricing with Concentrated Ownership of Capital

Arbeitspapier

This paper investigates how concentrated ownership of capital influences the pricing of risky assets in a production economy. The model is designed to approximate the skewed distribution of wealth and income in U.S. data. I show that concentrated ownership significantly magnifies the equity risk premium relative to an otherwise similar representative-agent economy because the capital owners' consumption is more strongly linked to volatile dividends from equity. A temporary shock to the technology for producing new capital (an "investment shock") causes dividend growth to be much more volatile than aggregate consumption growth, as in long-run U.S. data. The investment shock can also be interpreted as a depreciation shock, or more generally, a financial friction that affects the supply of new capital. Under power utility with a risk aversion coeffecient of 3.5, the model can roughly match the first and second moments of key asset pricing variables in long-run U.S. data, including the historical equity risk premium. About one-half of the model equity premium is attributable to the investment shock while the other half is attributable to a standard productivity shock. On the macro side, the model performs reasonably well in matching the business cycle moments of aggregate variables, including the pro-cyclical movement of capital's share of total income in U.S. data.

Angaben zum Objekt

• ISBN: 978-82-7553-634-9
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Working Paper ; No. 2011/18

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Aggregate Factor Income Distribution ; Business Fluctuations; Cycles ; Financial Markets and the Macroeconomy ; Asset Pricing; Trading Volume; Bond Interest Rates ; Economic Growth and Aggregate Productivity: General
• Thema: asset pricing ; equity premium ; term premium ; investment shocks ; real business cycles ; wealth inequality

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Lansing, Kevin J.
• Ereignis: Veröffentlichung
• (wer): Norges Bank
• (wo): Oslo
• (wann): 2011

Weitere Informationen

• Handle: http://hdl.handle.net/10419/209994
• Letzte Aktualisierung: 10.03.2025, 11:45 MEZ