Asset returns in an endogenous growth model with incomplete markets

Arbeitspapier

This paper analyzes a class of stochastic endogenous growth models with uninsurable idiosyncratic income risk. The model economy is populated by infinitely-lived households who own and operate their own business, work for a stock company, and participate in stock and bond markets. Households have time- and state-additive log-utility preferences and production functions exhibit constant returns to scale with respect to produced input factors (physical and human capital). This paper shows that if the idiosyncratic component of productivity and depreciation shocks is unpredictable, then there exists an equilibrium in which households choose not to trade bonds. This no-trade result implies that equilibria can be found by solving a one-agent decision problem. The paper also analyzes the asset return implications of a calibrated model economy with an individual income process that displays realistic variations in idiosyncratic income risk. The calibrated model economy generates a sizable mean equity premium (1%) if the volatility of implied stock returns matches the volatility of observed U.S. stock returns.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Working Paper ; No. 2002-18

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Incomplete Markets ; Computable and Other Applied General Equilibrium Models ; Asset Pricing; Trading Volume; Bond Interest Rates
• Thema: Incomplete Markets ; Heterogeneous Agents ; Asset Returns ; Endogenous Growth. ; Neue Wachstumstheorie ; Finanzmarkt ; Kapitalertrag ; Unvollkommener Markt ; Theorie

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Krebs, Tom ; Wilson, Bonnie
• Ereignis: Veröffentlichung
• (wer): Brown University, Department of Economics
• (wo): Providence, RI
• (wann): 2002

Weitere Informationen

• Handle: http://hdl.handle.net/10419/80145
• Letzte Aktualisierung: 10.03.2025, 11:41 MEZ