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  3. American Economic Journal: Macroeconomics
  4. October 2015
  5. Asset Pricing with Concentrated Ownership of Capital and Distribution Shocks

Asset Pricing with Concentrated Ownership of Capital and Distribution Shocks

  • Kevin J. Lansing
American Economic Journal: Macroeconomics
vol. 7, no. 4, October 2015
(pp. 67-103)
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Abstract

This paper develops a production-based asset pricing model with two types of agents and concentrated ownership of physical capital. A temporary but persistent "distribution shock" causes the income share of capital owners to fluctuate in a procyclical manner, consistent with US data. The concentrated ownership model significantly magnifies the equity risk premium relative to a representative-agent model because the capital owners' consumption is more-strongly linked to volatile dividends from equity. With a steady-state risk aversion coefficient around 4, the model delivers an unleveled equity premium of 3.9 percent relative to short-term bonds and a premium of 1.2 percent relative to long-term bonds. (JEL D31, E13, E25, E32, E44, G12)

Citation

Lansing, Kevin J. 2015. "Asset Pricing with Concentrated Ownership of Capital and Distribution Shocks." American Economic Journal: Macroeconomics, 7 (4): 67-103. DOI: 10.1257/mac.20110130

Additional Materials

JEL Classification

  • D31 Personal Income, Wealth, and Their Distributions
  • E13 General Aggregative Models: Neoclassical
  • E25 Aggregate Factor Income Distribution
  • E32 Business Fluctuations; Cycles
  • E44 Financial Markets and the Macroeconomy
  • G12 Asset Pricing; Trading Volume; Bond Interest Rates
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