Distribution Risk and Equity Returns

Jean-Pierre Danthine, Paolo Siconolfi and John B Donaldson

No 5425, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: In this paper we entertain the hypothesis that observed variations in income shares are the result of changes in the balance of power between workers and capital owners in labour relations. We show that this view implies that income share variations represent a risk factor of first-order importance for the owners of capital and, consequently, are a crucial determinant of the return to equity. When both risks are calibrated to observations, this distribution risk dominates in importance the usual systematic risk for the pricing of assets. We also show that distribution risks may originate in non-traded idiosyncratic income shocks.

Keywords: Income shares; Distribution risk; Equity premium; Limited market participation (search for similar items in EconPapers)
JEL-codes: E3 G1 (search for similar items in EconPapers)
Date: 2005-12
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-fin, nep-fmk, nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Distribution Risk and Equity Returns (2005)
Working Paper: Distribution Risk and Equity Returns (2005)
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