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Asset Pricing with Endogenously Uninsurable Tail Risk / Hengjie Ai, Anmol Bhandari.
- Format:
- Book
- Author/Creator:
- Ai, Hengjie.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w24972.
- NBER working paper series no. w24972
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2018.
- Summary:
- This paper studies asset pricing and labor market dynamics in a setting in which idiosyncratic risk in human capital is not fully insurable. Firms use long-term contracts to provide insurance to workers, but neither side can fully commit; furthermore, owing to costly and unobservable retention effort, worker-firm relationships have endogenous durations. Uninsured tail risk in labor earnings arises as a part of an optimal risk-sharing scheme. In equilibrium, exposure to the tail risk generates higher aggregate risk premia and higher return volatility. Consistent with data, firm-level labor share predicts both future returns and pass-throughs of firm-level shocks to labor compensation.
- Notes:
- Print version record
- August 2018.
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