Equity premium under multiple background risks

In a static Lucas's tree economy, we explore the effect of two types of background risk, uninsurable risk for labor income and miscalibrated risk for payoff distribution of risky asset, on the equilibrium price of the risky asset. Then we analyze the data of U.S. stock market and GDP growth rates during 1871-2004 to verify that our simple static model could provide appropriate magnitudes of equity premium.

MoreLess

Year of publication:	2010
Authors:	Fujii, Yoichiro ; Nakamura, Yutaka
Published in:	Economics Bulletin. - AccessEcon, ISSN 1545-2921. - Vol. 30.2010, 2, p. 933-939
Publisher:	AccessEcon
Subject:	equity premium \| static Lucas model \| background risk \| equilibrium price

More details

Extent:	application/pdf
Type of publication:	Article
Language:	English
Classification:	E2 - Consumption, Saving, Production, Employment, and Investment ; D5 - General Equilibrium and Disequilibrium
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10008503159