Shaking the Tree: An Agency-Theoretic Model of Asset Pricing
نویسندگان
چکیده
In this paper, we develop an agency-theoretic extension of the Lucas asset pricing model and examine the resulting asset price dynamics. In the model, an agent of the firm can expand or contract the firm’s output and dividend payments in response to exogenous shocks, although expansions become increasingly costly for the agent to maintain. Analysis of numerical simulations shows that the time-series of equilibrium asset prices exhibits both significant timevarying conditional heteroskedasticity, and longer memory persistence. JEL Classification No.: G12 We would like to thank Beth Shorish for her patience and guidance during this project.
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