Equilibrium Asset Prices With Undiversifiable Labor Income Risk

Philippe Weil

No 3975, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In a two-period Lucas tree economy in which ex ante identical, but ex post dissimilar, agents face undiversifiable labor income risk, calibrating a (wrong) representative agent model results in overstating the equilibrium riskfree rate and in understanding the equilibrium equity premium if the utility function exhibits decreasing absolute risk aversion and decreasing absolute prudence. These behavioral assumptions provide, as a consequence, a theoretical rationale for the often advanced conjecture that non-traded risk contributes to the solution of the riskfree rate and equity premium puzzles.

Date: 1992-01
Note: AP
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Citations: View citations in EconPapers (106)

Published as Journal of Economic Dynamics and Control, Vol. 16, nos. 3/4 (1992): 769-790 .

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Related works:
Journal Article: Equilibrium asset prices with undiversifiable labor income risk (1992)
Working Paper: Equilibrium Asset Prices with Undiversifiable Labor Income Risk (1992)
Working Paper: Equilibrium Asset Prices with Undiversifiable Labor Income Risk (1992)
Working Paper: Equilibrium Asset Prices with Undiversifiable Labor Income Risk (1992)
Working Paper: Equilibrium Asset Prices with Undiversifiable Labor Income Risk (1992)
Working Paper: Equilibrium Asset Prices with Undiversifiable Labor Income Risk (1991)
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