Overlapping Generations and Representative Agent Models of the Equity Premia: Implications from a Growing Economy
Kevin Salyer ()
Canadian Journal of Economics, 1988, vol. 21, issue 3, 565-78
Abstract:
This paper compares the risk premia on stock (both conditional and unconditional) implied by a class of overlapping generations and re presentative agent models in an exchange economy with stochastic endo wment growth rates. It is shown that, when shocks are independently d istributed, the models are observationally equivalent. However, with positively autocorrelated growth rates, the risk premia can become ne gative in a representative agent model, while bounded above zero in a n overlapping generations model. These results are interpreted via th e consumption-based capital asset pricing model and highlight the end ogenous consumption levels in an overlapping generations model.
Date: 1988
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