Asset prices and returns are known to vary significantly more than output or aggregate consumption growth, and an order of magnitude in excess of what is justified by innovations to fundamentals. We study excess price volatility in a lifecycle economy with two assets (claims on capital and a...

The authors consider an overlapping generations economy where capital is produced from bank loans under stochastic constant returns to scale and subject to idiosyncratic shocks whose realizations are costly to verify. Their formulation differs from earlier work in permitting investment projects...

Asset prices and returns are known to vary significantly more than output or aggregate consumption growth, and an order of magnitude in excess of what is justified by innovations to fundamentals. We study excess price volatility in a lifecycle economy with two assets (claims on capital and a...