Incentive Constrained Risk Sharing, Segmentation, and Asset Pricing

Johan Hombert (), Bruno Biais and Pierre-Olivier Weill

No 1236, HEC Research Papers Series from HEC Paris

Abstract: Incentive problems make assets imperfectly pledgeable. Introducing these problems in an otherwise canonical general equilibrium model yields a rich set of implications. Asset markets are endogenously segmented. There is a basis going always in the same direction, as the price of any risky asset is lower than that of the replicating portfolio of Arrow securities. Equilibrium expected returns are concave in consumption betas, in line with empirical findings. As the dispersion of consumption betas of the risky assets increases, incentive constraints are relaxed and the basis reduced. When hit by adverse shocks, relatively risk tolerant agents sell the safest assets they hold.

Keywords: Asset markets; Risk Sharing; Asset Pricing (search for similar items in EconPapers)
JEL-codes: A10 (search for similar items in EconPapers)
Pages: 72 pages
Date: 2017-10-24
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Incentive Constrained Risk Sharing, Segmentation, and Asset Pricing (2021)
Working Paper: Incentive Constrained Risk Sharing, Segmentation, and Asset Pricing (2019)
Working Paper: Incentive Constrained Risk Sharing, Segmentation, and Asset Pricing (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1236

DOI: 10.2139/ssrn.3057923

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