Asset Pricing with Concentrated Ownership of Capital and Distribution Shocks

Kevin Lansing

American Economic Journal: Macroeconomics, 2015, vol. 7, issue 4, 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)

JEL-codes: D31 E13 E25 E32 E44 G12 (search for similar items in EconPapers)
Date: 2015
Note: DOI: 10.1257/mac.20110130
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Citations: View citations in EconPapers (29)

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