Abstract

http://ssrn.com/abstract=687126
 
 

References (64)



 
 

Citations (45)



 


 



Asset Pricing with Limited Risk Sharing and Heterogeneous Agents


Francisco Gomes


London Business School

Alexander Michaelides


Imperial College Business School; University of Cyprus - Department of Public and Business Administration; Centre for Economic Policy Research (CEPR)

2005

AFA 2006 Boston Meetings Paper

Abstract:     
We solve a model with incomplete markets and heterogeneous agents that generates a large equity premium, while simultaneously matching individual allocations (stock market participation rate and asset holdings). Limited participation is derived endogenously and has a negligible impact on the risk premium, contrary to the results of models where it is imposed exogenously. We obtain a high risk premium with moderate risk aversion (5 or less). This is driven by incomplete risk sharing among stockholders, which results from the combination of borrowing constraints with a (realistically) calibrated life-cycle stochastic earnings profile subject to both aggregate and idiosyncratic shocks.

Number of Pages in PDF File: 47

Keywords: Equity Premium, Preference Heterogeneity, Incomplete Risk Sharing, Life-Cycle Models, Limited Stock Market Participation.

JEL Classification: E21, G11

working papers series


Download This Paper

Date posted: March 22, 2005  

Suggested Citation

Gomes, Francisco and Michaelides, Alexander, Asset Pricing with Limited Risk Sharing and Heterogeneous Agents (2005). AFA 2006 Boston Meetings Paper. Available at SSRN: http://ssrn.com/abstract=687126 or http://dx.doi.org/10.2139/ssrn.687126

Contact Information

Francisco Gomes (Contact Author)
London Business School ( email )
Institute of Finance and Accounting
Sussex Place - Regent's Park
London NW1 4SA
United Kingdom
+44 20 7262 5050 (Phone)
+44 20 7724 3317 (Fax)
HOME PAGE: http://www.london.edu/faculty/fgomes
Alexander Michaelides
Imperial College Business School ( email )
South Kensington Campus
Exhibition Road
London SW7 2AZ, DC SW7 2AZ
United Kingdom
University of Cyprus - Department of Public and Business Administration ( email )
75 Kallipoleos Street
P.O. Box 20537
Nicosia CY-1678
CYPRUS
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Feedback to SSRN


Paper statistics
Abstract Views: 741
Downloads: 88
References:  64
Citations:  45

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.297 seconds