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Asset Pricing with Heterogeneous Consumers and Limited Participation: Empirical Evidence / Alon Brav, George M. Constantinides, Christopher C. Geczy.
- Format:
- Book
- Author/Creator:
- Brav, Alon.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w8822.
- NBER working paper series no. w8822
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Other Title:
- Asset Pricing with Heterogeneous Consumers and Limited Participation
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2002.
- Summary:
- We present evidence that the equity premium and the premium of value stocks over growth stocks are explained in the 1982 1996 period with a stochastic discount factor (SDF) calculated as the weighted average of individual households' marginal rate of substitution with low and economically plausible values of the relative risk aversion (RRA) coefficient. Household consumption of non-durables and services is reconstructed from the CEX database. Since the above premia are not explained with a SDF calculated as the per capita marginal rate of substitution with low value of the RRA coefficient, the evidence supports the hypothesis of incomplete consumption insurance. We also present evidence is that a SDF calculated as the per capita marginal rate of substitution is better able to explain the equity premium and does so with a lower value of the RRA coefficient, as the definition of asset holders is tightened to recognize the limited participation of households in the capital market.
- Notes:
- Print version record
- March 2002.
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