Consumption Asset Pricing with Stable Shocks: Exploring a Solution and Its Implications for the Equity Premium Puzzle

We study the consumption based asset pricing model due to Lucas (1978). The exogenous endowment sequence is modeled as a linear stochastic process driven by stable shocks in an otherwise standard framework. The Gaussian process emerges as a special case. We derive exact analytical solutions for asset prices and returns, and provide conditions under which these exist. We also study the implications of the model for the equity premium puzzle.

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Year of publication:	2001-04-01
Authors:	Bidarkota, Prasad V. ; McCulloch, J. Huston
Institutions:	Society for Computational Economics - SCE
Subject:	Asset pricing \| Lucas model \| equity premium \| normal distributions \| stable distributions

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Extent:	application/pdf
Series:	Computing in Economics and Finance 2001.
Type of publication:	Book / Working Paper
Notes:	The text is part of a series Computing in Economics and Finance 2001 Number 70
Classification:	G12 - Asset Pricing
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005537747