Risk Premiums, Nominal Rigidities and Limited Asset Market Participation

35 Pages Posted: 6 Nov 2018

See all articles by Lorenzo Menna

Lorenzo Menna

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS); Università degli Studi di Milano-Bicocca - Center for European Studies (CefES)

Patrizio Tirelli

Department of Economics and Management; Università degli Studi di Milano-Bicocca - Center for European Studies (CefES)

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

Menna, Lorenzo and Tirelli, Patrizio, Risk Premiums, Nominal Rigidities and Limited Asset Market Participation (October 31, 2018). University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 388, Available at SSRN: https://ssrn.com/abstract=3276258 or http://dx.doi.org/10.2139/ssrn.3276258

Lorenzo Menna

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Università degli Studi di Milano-Bicocca - Center for European Studies (CefES)

U6 Building
Viale Piero e Alberto Pirelli, 22
Milano, 20126
Italy

Patrizio Tirelli (Contact Author)

Department of Economics and Management ( email )

Corso Strada Nuova, 65
27100 Pavia, 27100
Italy

HOME PAGE: http://https://sites.google.com/site/patriziotirellihomepage/

Università degli Studi di Milano-Bicocca - Center for European Studies (CefES)

U6 Building
Viale Piero e Alberto Pirelli, 22
Milano, 20126
Italy

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