Shifts in Sectoral Wealth Shares and Risk Premia: What Explains Them?

55 Pages Posted: 4 May 2017 Last revised: 27 Nov 2017

See all articles by Ravi Bansal

Ravi Bansal

Duke University and NBER

Colin Ward

University of Minnesota - Carlson School of Management

Amir Yaron

University of Pennsylvania -- Wharton School of Business; National Bureau of Economic Research (NBER)

Date Written: November 23, 2017

Abstract

We empirically show across several broad asset classes that sectoral wealth shares do not positively correlate with their risk premia---a first-order prediction of canonical equilibrium models. We then analyze the roles mean-variance and hedging demand play in accounting for sectoral shifts within a two-sector production economy that features imperfect substitutability across goods and demand shocks. With these two features, the model's performance improves, yet still unsatisfactorily accounts for sectoral shifts in wealth shares. We argue that equilibrium models thus face a challenge to explain the cross-sectional evolution of wealth shares and investors' incentives to hold them over time.

Keywords: Portfolio Allocation, Hedging Demand, Asset Pricing, Production, Equity Markets, Housing

JEL Classification: E21, E22, G11, G12

Suggested Citation

Bansal, Ravi and Ward, Colin and Yaron, Amir, Shifts in Sectoral Wealth Shares and Risk Premia: What Explains Them? (November 23, 2017). Available at SSRN: https://ssrn.com/abstract=2962635 or http://dx.doi.org/10.2139/ssrn.2962635

Ravi Bansal

Duke University and NBER ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7758 (Phone)
919-660-8038 (Fax)

Colin Ward (Contact Author)

University of Minnesota - Carlson School of Management ( email )

Carlson School of Management
321 19th Avenue South
Minneapolis, MN 55455
United States

Amir Yaron

University of Pennsylvania -- Wharton School of Business ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-898-1241 (Phone)
215-898-6200 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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