EconPapers    
Economics at your fingertips  
 

Asset pricing implications of Pareto optimality with private information

Narayana Kocherlakota () and Luigi Pistaferri ()

No 2005,29, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank, Research Centre

Abstract: In this paper, we consider a dynamic economy in which the agents in the economy are privately informed about their skills, which evolve stochastically over time in an arbitrary fashion. We consider an asset pricing equilibrium in which equilibrium quantities are constrained Pareto optimal. Under the assumption that agents have constant relative risk aversion, we derive a novel asset pricing kernel for financial asset returns. The kernel equals the reciprocal of the gross growth of the γth moment of the consumption distribution, where – is the coefficient of relative risk aversion. We use data from the consumer expenditure survey (CEX) and show that the new stochastic discount factor performs better than existing stochastic discount factors at rationalizing the equity premium. However, its ability to simultaneously explain the equity premium and the expected return to the Treasury bill is about the same as existing discount factors.

New Economics Papers: this item is included in nep-dge, nep-fmk and nep-upt
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (9) Track citations by RSS feed

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/19614/1/200529dkp.pdf (application/pdf)

Related works:
Journal Article: Asset Pricing Implications of Pareto Optimality with Private Information (2009) Downloads
Working Paper: Asset Pricing Implications of Pareto Optimality with Private Information (2007) Downloads
Working Paper: Asset Pricing Implications of Pareto Optimality with Private Information (2005) Downloads
Working Paper: Asset Pricing Implications of Pareto Optimality with Private Information (2005) Downloads
Working Paper: Asset Pricing Implications of Pareto Optimality with Private Information (2004) Downloads
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:zbw:bubdp1:4223

Access Statistics for this paper

More papers in Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank, Research Centre Contact information at EDIRC.
Series data maintained by ZBW - German National Library of Economics ().

 
Page updated 2017-11-16
Handle: RePEc:zbw:bubdp1:4223