Asset Pricing with Home Capital

Michal Pakos

No 2007-E28, GSIA Working Papers from Carnegie Mellon University, Tepper School of Business

Abstract: I analyze a stylized consumption-based asset pricing model that features heterogeneous agents and household capital, and discover a novel recession risk factor related to the cross-sectional second moments of the corresponding investments into such home capital. In order to fully isolate the orthogonal effects at work, I completely shut off the well-known mechanism of Constantinides and Duffie (1996) by explicitly stipulating homoscedastic cross-sectional distribution of nondurable goods and services.

Date: 2008-12
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