Format:
1 Online-Ressource (55 p)
Content:
We present a consumption-based heterogeneous agent model that explains the equity premium puzzle and many associated asset pricing phenomena. The success of the model relies on a combination of limited stock market participation with uninsurable income risk and borrowing constraints. The two latter frictions - as shown by the early authors - generate a precautionary saving demand for tradable assets such as one-period discount bonds, and thus lower the risk-free rate. However, there is no precautionary saving demand for stocks because of limited stock market participation; therefore, our model generates a sizeable equity premium. Also, in the presence of borrowing constraints, the shareholder's consumption growth or the pricing kernel of stocks mirrors his income growth, which is volatile and mean-reverting. Stock prices, therefore, exhibit excess volatility as well as predictability. Moreover, the model predicts that stock market volatility is a U-shaped function of the price-dividend ratio, which helps explain the 'perverse' negative risk-return tradeoff documented in the literature. The argument for a leverage effect is thus not always valid; stock return is negatively related to contemporaneous conditional volatility mainly because of a volatility feedback effect
Note:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments October 2002 erstellt
Language:
Undetermined
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