Asset Pricing With Endogenously Uninsurable Tail Risk

Asset Pricing with Endogenously Uninsurable Tail Risks

This paper studies asset pricing in a setting where idiosyncratic risks in labor productivities are uninsurable due to limited commitment. Firms provide insurance to workers using long-term contracts but neither side can commit to these relationships. Under the optimal contract, sufficiently adverse shocks to worker productivity are uninsured. In general equilibrium, exposure to down-side tail ...

Asset Demands of Heterogeneous Consumers with Uninsurable Idiosyncratic Risk

We examine asset market equilibrium in an intertemporal economic model with individual and aggregate uncertainty and where the asset market is incomplete. Modigliani-Miller leverage irrelevance holds, even when consumers face borrowing constraints, because individual firms cannot alter the equilibrium portfolio of securities available to consumers. We show that households demand less risky port...

Pricing multi-asset financial products with tail dependence using copulas

Consumption-Based Asset Pricing with Recursive Utility

In this paper it has been attempted to investigate the capability of the consumption-based capital asset pricing model (CCAPM), using the general method of moment (GMM), with regard to the Epstien-zin recursive preferences model for Iran's capital market. Generally speaking, recursive utility permits disentangling of the two psychologically separate concepts of risk aversion and elasticity of i...

Asset Pricing with Garbage

A new measure of consumption, garbage, is more volatile and more correlated with stocks than the canonical measure, National Income and Product Accounts (NIPA) consumption expenditure. A garbage-based consumption capital asset pricing model matches the U.S. equity premium with relative risk aversion of 17 versus 81 and evades the joint equity premium-risk-free rate puzzle. These results carry t...