Uninsurable Risk and Financial Market Puzzles
Andrei Semenov and
MPRA Paper from University Library of Munich, Germany
Following Kocherlakota and Pistaferri (2009), we consider two forms of incomplete risk sharing in economies with consumer heterogeneity: (a) where agents are unable to insure their consumption against idiosyncratic skill shocks and (b) where idiosyncratic shocks to skills can be partially insured by striking long term insurance contract with truth revelation constraint. When considering the equity premium, currency premium, risk-free rate, and consumption-real exchange rate puzzles in an integrated framework, we find empirical evidence that although the pricing kernel associated with (a) outperforms the complete risk-sharing stochastic discount factor and the pricing kernel associated with (b), it is still unable to jointly resolve these asset-pricing anomalies.
Keywords: Currency Premium; Equity Premium; Exchange Rate. (search for similar items in EconPapers)
JEL-codes: F30 G00 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-ias
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Journal Article: Uninsurable risk and financial market puzzles (2011)
Working Paper: Uninsurable Risk and Financial Market Puzzles (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:23351
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