We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Revisiting Asset Pricing Puzzles in an Exchange Economy.
- Authors
Parlour, Christine A.; Stanton, Richard; Walden, Johan
- Abstract
We show that several well-known asset pricing puzzles are largely mitigated if we endow the representative agent with an arbitrarily small minimum consumption level. This allows us to solve the model for parameter values where the standard “Lucas tree” model is not defined. For these parameters, disasters become more important, and the market risk premium therefore higher, even though consumption is less risky. Our model yields reasonable risk premia, Sharpe ratios, and discount rates; excess price volatility; and a high market price-dividend ratio. We derive closed-form solutions for all variables of interest.
- Subjects
MATHEMATICAL models of consumption; ARBITRARY constants; RISK premiums; RISK -- Mathematical models; DISCOUNT prices; PRICE variance; MODEL-based reasoning; PARAMETER estimation
- Publication
Review of Financial Studies, 2011, Vol 24, Issue 3, p629
- ISSN
0893-9454
- Publication type
Article
- DOI
10.1093/rfs/hhq130