The equity risk premium and the riskfree rate in an economy with borrowing constraints
نویسندگان
چکیده
منابع مشابه
The Equity Risk Premium and the Riskfree Rate in an Economy with Borrowing Constraints
Our objective in this article is to study analytically the effect of borrowing constraints on asset returns. We explicitly characterize the equilibrium for an exchange economy with two agents who differ in their risk aversion and are prohibited from borrowing. In a representative-agent economy with CRRA preferences, the Sharpe ratio of equity returns and the riskfree rate are linked by the risk...
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Simulating a realistic-sized equity premium in macroeconomic models has proved a daunting challenge, hence the “equity premium puzzle”. “Resolving” the puzzle requires heavy lifting. Precise choices of particular preferences, shocks, technologies, and hard borrowing constraints can do the trick, but haven’t stopped the search for a simpler and more robust solution. This paper suggests that soft...
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This paper studies the implications for general equilibnum asset pricing of a class of Kreps-Porteus nonexpected utility preferences characterized by a constant intertemporal elasticity of substitution and a constant, but unrelated, coefficient of relative risk aversion. It is shown that relaxing the parametric restriction on tastes imposed by the time-additive expected utility specification do...
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We use surveys of economic forecasts to derive a forward-looking estimate of the US equity risk premium (ERP) relative to government bonds. Our ERP measure helps predict short-term relative returns between stocks and bonds. Over the period we studied, low readings of the ERP tended to adjust back to the mean via a rally in the bond market rather than a fall in stock prices. We do not generalise...
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ژورنال
عنوان ژورنال: Mathematics and Financial Economics
سال: 2007
ISSN: 1862-9679,1862-9660
DOI: 10.1007/s11579-007-0001-3