Risk Premiums, Nominal Rigidities and Limited Asset Market Participation
University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 388
35 Pages Posted: 6 Nov 2018
Date Written: October 31, 2018
Abstract
Recent developments in the asset pricing literature show that a combination of technology and distributive shocks can rationalize observed risk premia when firm ownership is concentrated in the hands of few households. We find that distributive shocks are unnecessary when nominal price rigidity is taken into account. Our results are driven by the income redistribution associated to procyclical variations in profit margins when firms ownership is concentrated, prices are sticky and technology shocks hit the economy. In this regard, standard DSGE models that allow for firm ownership concentration have the potential to replicate both business cycle facts and the moments of financial variables.
Keywords: : asset pricing, equity premium, limited asset market participa- tion, business cycle, DSGE, sticky prices.
JEL Classification: E32, G12
Suggested Citation: Suggested Citation