The present project introduces the possibility of default on the trading contracts in an infinite horizon incomplete markets model, relaxing the usual assumption made in the literature with respect to the trading limits, which are chosen to be fixed or independent of the characteristics of the...

Using US quarterly post-war data, this paper documents the existence of two common trends among non-housing non durable and housing consumption, financial and real estate wealth, and labour income (a proxy for human wealth). The first equilibrium relationship reflects the stationarity of the...

The real business cycle (RBC) model pioneered by Kydland and Prescott (1982) was a fundamental step to understand business cycles. This literature, in general, claims that aggregate technology shocks are the main ingredient to explain these fluctuations. However, in order to match various...

This paper investigates the role of consumer heterogeneity in explaining asset returns. Using a Taylor series expansion of the individual's marginal utility of consumption around the conditional expectation of consumption, we derive an approximate equilibrium model for expected returns. In this...

Risk premia in the consumption capital asset pricing model depend on preferences and dividend. We develop a decomposition which allows a separate treatment of both components. We show that preferences alone determine the risk-return tradeoff measured by the Sharpe-ratio. In general, the...

Using a simple dynamic consumption-based asset pricing model, this paper explores the implications of a representative investor with smooth ambiguity averse preferences [Klibano¤, Marinacci and Mukerji, Econometrica (2005)] and provides a comparative analysis of risk aversion and ambiguity...

Can investors with irrational beliefs be neglected as long as they are rational on average ? Does unbiased disagreement lead to trades that cancel out with no consequences on prices, as implicitly assumed by the traditional models ? We show in this paper that there is an important impact of...

In this paper, I propose and test a simple technology-based theory of firms' sensitivities to aggregate shocks. I show that when the elasticity of substitution between capital and labor is below unity, low profitability firms are more sensitive to aggregate shocks, i.e. to the business cycle....

Asset prices have recently become a common topic in economic debate. Nevertheless, much time has been spent in determining if they effectively exhibit a bubble component, and not in examining whether asset prices affectively contain relevant information concerning future market developments....