Asset Pricing with Endogenously Uninsurable Tail Risk

Hengjie Ai and Anmol Bhandari

No 24972, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies asset pricing and labor market dynamics in a setting in which idiosyncratic risk in human capital is not fully insurable. Firms use long-term contracts to provide insurance to workers, but neither side can fully commit; furthermore, owing to costly and unobservable retention effort, worker-firm relationships have endogenous durations. Uninsured tail risk in labor earnings arises as a part of an optimal risk-sharing scheme. In equilibrium, exposure to the tail risk generates higher aggregate risk premia and higher return volatility. Consistent with data, firm-level labor share predicts both future returns and pass-throughs of firm-level shocks to labor compensation.

JEL-codes: E24 G12 J3 (search for similar items in EconPapers)
Date: 2018-08
New Economics Papers: this item is included in nep-cta, nep-dge, nep-ias and nep-mac
Note: AP EFG
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.nber.org/papers/w24972.pdf (application/pdf)

Related works:
Working Paper: Asset Pricing with Endogenously Uninsurable Tail Risk (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:24972

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w24972

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().