Early resolution of uncertainty and asset prices

Richard Kihlstrom and Christian Gollier ()
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Richard Kihlstrom: University of Pennsylvania

No 475, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: We characterize the properties of the term structures of the risk-free interest rates and of the equity premia when the representative agent has Epstein-Zin-Weil preferences. We consider a simple 3-date model with various forms of predictability of consumption growth. When risk aversion is larger than the aversion to consumption fluctuations, the persistency of the first-period shock on consumption reduces the short interest rate but raises the long interest rate. It raises the short equity premium, but it reduces the long equity premium.

Date: 2016
New Economics Papers: this item is included in nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:475

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