Risk Premiums, Nominal Rigidities, and Limited Asset Market Participation

Lorenzo Menna and Patrizio Tirelli

Journal of Money, Credit and Banking, 2021, vol. 53, issue 7, 1899-1921

Abstract: Recent developments in the asset pricing literature show that a combination of technology and distributive shocks can rationalize observed risk premia when firm ownership is concentrated in the hands of few households. We find that distributive shocks are unnecessary when nominal price rigidity is taken into account. Our results are driven by the income redistribution associated to procyclical variations in profit margins when firms ownership is concentrated, prices are sticky, and technology shocks hit the economy. In this regard, standard DSGE models that allow for firm ownership concentration have the potential to replicate both business cycle facts and the moments of financial variables.

Date: 2021
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https://doi.org/10.1111/jmcb.12793

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Working Paper: Risk Premiums, Nominal Rigidities and Limited Asset Market Participation (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:53:y:2021:i:7:p:1899-1921

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