Aggregate implications of micro asset market segmentation
An extensive empirical literature finds that micro asset markets are segmented from one another. We develop a consumption-based asset pricing model to quantify the aggregate implications of a financial system comprised of many such segmented micro asset markets. We specify exogenously the level of segmentation that determines how much idiosyncratic risk traders bear in their micro market and calibrate the segmentation to match facts about systematic and idiosyncratic return volatility. In our benchmark model traders bear 30% of their idiosyncratic risk, the unconditional aggregate equity premium is 2.4% annual, and the welfare costs of segmentation are substantial, 1.8% of lifetime consumption.
Year of publication: |
2012
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Authors: | Edmond, Chris ; Weill, Pierre-Olivier |
Published in: |
Journal of Monetary Economics. - Elsevier, ISSN 0304-3932. - Vol. 59.2012, 4, p. 319-335
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Publisher: |
Elsevier |
Saved in:
Online Resource
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