Nontraded income and the CAPM

Philippe Weil

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Abstract: Asset pricing models that rely on the presence of non-tradable assets (such as human wealth) to solve the equity premium puzzle have to confront the effect of decreasing absolute risk aversion: rich investors, who according to micro data hold the stock market and whose behavior is the one that matters, at the margin, for the determination of equilibrium asset prices, are less risk averse, ceteris paribus, than the average consumer. This paper highlights a channel through which the effect of decreasing absolute risk aversion can be overcome: the existence of a positive correlation between the rates of return on traded assets and on the human capital of marginal investors.

Keywords: Nontraded assets; CAPM; ncomplete markets; Human capital (search for similar items in EconPapers)
Date: 1994-04
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Published in European Economic Review, 1994, 38 (3-4), pp.913 - 922. ⟨10.1016/0014-2921(94)90127-9⟩

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Working Paper: Nontraded income and the CAPM (1994)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03596965

DOI: 10.1016/0014-2921(94)90127-9

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