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)
Lansing, Kevin J.
"Asset Pricing with Concentrated Ownership of Capital and Distribution Shocks."
American Economic Journal: Macroeconomics,
Personal Income, Wealth, and Their Distributions
General Aggregative Models: Neoclassical
Aggregate Factor Income Distribution
Business Fluctuations; Cycles
Financial Markets and the Macroeconomy
Asset Pricing; Trading Volume; Bond Interest Rates