Stock Prices Under Time-Varying Dividend Risk: an Exact Solution in an Infinite-Horizon General Equilibrium Model
30 Pages Posted: 4 Jul 2004 Last revised: 1 Sep 2022
Date Written: June 1988
Abstract
The effects on asset prices of changes in risk are studied in a general equilibrium model in which the conditional risk evolves stochastically over time. The savings decisions of consumers take account of the fact that conditional risk is a serially correlated random variable. By restricting the specification of consumers' preferences and the stochastic specification of dividends, it is possible to obtain an exact solution for the prices of the aggregate stock and riskless one-period bonds. An increase in the conditional risk reduces the stock price if and only if the elasticity marginal utility is less than one.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
There is a Risk-Return Tradeoff after All
By Pedro Santa-clara, Eric Ghysels, ...
-
There is a Risk-Return Tradeoff after All
By Eric Ghysels, Pedro Santa-clara, ...
-
The Equity Premium and Structural Breaks
By Lubos Pastor and Robert F. Stambaugh
-
By Qiang Kang and Michael W. Brandt
-
A Markov Model of Heteroskedasticity, Risk, and Learning in the Stock Market
By Christopher M. Turner, Richard Startz, ...
-
Uncovering the Risk-Return Relation in the Stock Market
By Hui Guo and Robert Whitelaw