Distribution Risk and Equity Returns

Jean-Pierre Danthine, John B. Donaldson and Paolo Siconolfi
Additional contact information
John B. Donaldson: Columbia University
Paolo Siconolfi: Columbia University

FAME Research Paper Series from International Center for Financial Asset Management and Engineering

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 labor relations. We show that this view implies that income share variations represent a risk factor of ¯rst-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: 2005-11
New Economics Papers: this item is included in nep-fin, nep-fmk and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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