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Risk Based Explanations of the Equity Premium

Mehra, Rajnish; Donaldson, John - National Bureau of Economic Research (NBER) - 2007

This essay reviews the family of models that seek to provide aggregate risk based explanations for the empirically observed equity premium. Theories based on non-expected utility preference structures, limited financial market participation, model uncertainty and the small probability of...

Persistent link: https://www.econbiz.de/10005589022

Incomplete-Market Equilibria Solved Recursively on an Event Tree

Dumas, Bernard; Lyasoff, Andrew - National Bureau of Economic Research (NBER) - 2008

We develop a method that allows one to compute incomplete-market equilibria routinely for Markovian equilibria (when they exist). The main difficulty to be overcome arises from the set of state variables. There are, of course, exogenous state variables driving the economy but, in an incomplete...

Persistent link: https://www.econbiz.de/10005580794

Incomplete Markets, Heterogeneity and Macroeconomic Dynamics

Preston, Bruce; Roca, Mauro - National Bureau of Economic Research (NBER) - 2007

This paper solves a real business cycle model with heterogeneous agents and uninsurable income risk using perturbation methods. A second order accurate characterization of agent's optimal decision rules is given, which renders the implications of aggregation for macroeconomic dynamics...

Persistent link: https://www.econbiz.de/10005828435

Education and Borrowing Constraints: Tests vs. Prices

Fernandez, Raquel - National Bureau of Economic Research (NBER) - 1998

This paper examines the properties of exams and markets as alternative allocation devices under borrowing constraints. Exams dominate markets in terms of matching efficiency. Whether aggregate consumption is greater under exams than under markets depends on the power of the exam technology; for...

Persistent link: https://www.econbiz.de/10005828477

Financial Innovation, Market Participation and Asset Prices

Calvet, Laurent E.; Sodini, Paolo; Gonzalez-Eiras, Martin - National Bureau of Economic Research (NBER) - 2003

This paper investigates the pricing effects of financial innovation in an economy with endogenous participation and heterogeneous income risks. The introduction of non-redundant assets endogenously modifies the participation set, reduces the covariance between dividends and participants'...

Persistent link: https://www.econbiz.de/10005828496

Heterogeneous Information Arrival and Option Pricing

Asea, Patrick K.; Ncube, Mthuli - National Bureau of Economic Research (NBER) - 1997

We model the arrival of heterogeneous information in a financial market as a doubly-stochastic Poisson process (DSPP). A DSPP is a member of the family of Poisson processes in which the mean value of the process itself is governed by a stochastic mechanism. We explore the implications for...

Persistent link: https://www.econbiz.de/10005830224

Public versus Private Risk Sharing

Krueger, Dirk; Perri, Fabrizio - National Bureau of Economic Research (NBER) - 2009

Can public insurance through redistributive income taxation improve the allocation of risk in an economy in which … the first place. If risk sharing is incomplete because some insurance markets are missing for model-exogenous reasons (as … of risk. If instead private insurance markets exist but their use is limited by the absence of complete enforcement (as …

Persistent link: https://www.econbiz.de/10008614643

Counterparty Risk Externality: Centralized Versus Over-the-counter Markets

Acharya, Viral V.; Bisin, Alberto - National Bureau of Economic Research (NBER) - 2011

We model the opacity of over-the-counter (OTC) markets in a setup where agents share risks, but have incentives to default and their financial positions are not mutually observable. We show that this setup results in excess "leverage" in that parties take on short OTC positions that lead to...

Persistent link: https://www.econbiz.de/10009004115

Decentralization, Communication, and the Origins of Fluctuations

Angeletos, George-Marios; La'O, Jennifer - National Bureau of Economic Research (NBER) - 2011

We consider a class of convex, competitive, neoclassical economies in which agents are rational; the equilibrium is unique; there is no room for randomization devices; and there are no shocks to preferences, technologies, endowments, or other fundamentals. In short, we rule out every known source...

Persistent link: https://www.econbiz.de/10009021949

A Market Based Solution to Price Externalities: A Generalized Framework

Townsend, Robert M.; Kilenthong, Weerachart T. - National Bureau of Economic Research (NBER) - 2014

Pecuniary externalities have regained the interest of researchers as they seek policy interventions and regulations to remedy externality-induced distortions, e.g., balance sheet effects, amplifiers and fire sales. In this paper we go back to first principles and show how to design financial...

Persistent link: https://www.econbiz.de/10010796686

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