Asset Pricing with Heterogeneous Consumers and Limited Participation: Empirical Evidence

Alon Brav, George Constantinides and Christopher Geczy ()

No 8822, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We present evidence that the equity premium and the premium of value stocks over growth stocks are explained in the 1982 1996 period with a stochastic discount factor (SDF) calculated as the weighted average of individual households' marginal rate of substitution with low and economically plausible values of the relative risk aversion (RRA) coefficient. Household consumption of non-durables and services is reconstructed from the CEX database. Since the above premia are not explained with a SDF calculated as the per capita marginal rate of substitution with low value of the RRA coefficient, the evidence supports the hypothesis of incomplete consumption insurance. We also present evidence is that a SDF calculated as the per capita marginal rate of substitution is better able to explain the equity premium and does so with a lower value of the RRA coefficient, as the definition of asset holders is tightened to recognize the limited participation of households in the capital market.

JEL-codes: D91 G12 (search for similar items in EconPapers)
Date: 2002-03
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (215)

Published as Alon Brav & George M. Constantinides & Christopher C. Geczy, 2002. "Asset Pricing with Heterogeneous Consumers and Limited Participation: Empirical Evidence," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 793-824, August.

Downloads: (external link)
http://www.nber.org/papers/w8822.pdf (application/pdf)

Related works:
Working Paper: Asset Pricing with Heterogeneous Consumers and Limited Participation: Empirical Evidence (1999)
Working Paper: Asset Pricing with Heterogeneous Consumers and Limited Participation: Empirical Evidence
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:8822

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w8822

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 ().