Asset Pricing with Heterogeneous Consumers.
Empirical difficulties encountered by representative-consumer models are resolved in an economy with heterogeneity in the form of uninsurable, persistent, and heteroscedastic labor income shocks. Given the joint process of arbitrage-free labor prices, dividends, and aggregate income satisfying a certain joint restriction, it is shown that this process is supported in the equilibrium of an economy with judiciously modeled income heterogeneity. The Euler equations of consumption in a representative-agent economy are replaced by a set of Euler equations that depend not only on the per capita consumption growth but also on the cross-sectional variance of the individual consumers' consumption growth. Copyright 1996 by University of Chicago Press.
Year of publication: |
1996
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Authors: | Constantinides, George M ; Duffie, Darrell |
Published in: |
Journal of Political Economy. - University of Chicago Press. - Vol. 104.1996, 2, p. 219-40
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Publisher: |
University of Chicago Press |
Saved in:
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