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/lp/american-economic-association/asset-pricing-with-concentrated-ownership-of-capital-and-distribution-HXP0ZPb6ff
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- Publisher
- American Economic Association
- Copyright
- Copyright © 2015 by the American Economic Association
- Subject
- Articles
- ISSN
- 1945-7715
- eISSN
- 1945-7715
- DOI
- 10.1257/mac.20110130
- Publisher site
- See Article on Publisher Site
Abstract
Abstract This paper develops a production-based asset pricing model with two types of agents and concentrated ownership of physical capital. A temporary but persistent “distribution shock” causes the income share of capital owners to fluctuate in a procyclical manner, consistent with US data. The concentrated ownership model significantly magnifies the equity risk premium relative to a representative-agent model because the capital owners' consumption is more-strongly linked to volatile dividends from equity. With a steady-state risk aversion coefficient around 4, the model delivers an unlevered equity premium of 3.9 percent relative to short-term bonds and a premium of 1.2 percent relative to long-term bonds. (JEL D31, E13, E25, E32, E44, G12 )
Journal
American Economic Journal: Macroeconomics – American Economic Association
Published: Oct 1, 2015