Type
Article
Titre
Equilibrium Asset Prices with Undiversifiable Labor Income Risk
Dans
Journal of Economic Dynamics and Control
Auteur(s)
Éditeur
NL : Elsevier B.V.
Volume
16
Numéro
3-4
Pages
769 - 790 p.
ISSN
01651889
Résumé
EN
In a two-period Lucas tree economy in which ex ante identical, but ex post dissimilar, agents face undiversifiable labor income risk, calibrating a (wrong) representative agent model results in overstating the equilibrium riskfree rate and in understating the equilibrium equity premium if the utility function exhibits decreasing absolute risk aversion and decreasing absolute prudence. These behavioral assumptions provide, as a consequence, a theoretical rationale for the often advanced conjecture that nontraded risk contributes to the solution of the riskfree rate and equity premium puzzles.

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