American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Asset Pricing with Concentrated Ownership of Capital and Distribution Shocks
American Economic Journal: Macroeconomics
vol. 7,
no. 4, October 2015
(pp. 67–103)
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.20110130Additional 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