Asset Pricing with Concentrated Ownership of Capital and Distribution Shocks

This paper develops a production-based asset pricing model with two types of agents and concentrated ownership of physical capital. A temporary but persistent "distribution shock" causes the income share of capital owners to fluctuate in a procyclical manner, consistent with US data. The c...

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Bibliographic Details
Published in:American economic journal. Macroeconomics 2015-10, Vol.7 (4), p.67-103
Main Author: Lansing, Kevin J.
Format: Article
Language:English
Subjects:
Business cycles
Calibration
Capital income
CAPM
Consumption
Dividends
Economic growth models
Economic statistics
Equity
Growth rate
Households
Income distribution
Income shares
Labor supply
Macroeconomic modeling
Macroeconomics
Modeling
National income and product accounts
NIPA
Prices
Standard deviation
Stockholders
Studies
Volatility
Wages & salaries
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Summary:This paper develops a production-based asset pricing model with two types of agents and concentrated ownership of physical capital. A temporary but persistent "distribution shock" causes the income share of capital owners to fluctuate in a procyclical manner, consistent with US data. The concentrated ownership model significantly magnifies the equity risk premium relative to a representative-agent model because the capital owners' consumption is more-strongly linked to volatile dividends from equity. With a steady-state risk aversion coefficient around 4, the model delivers an unlevered equity premium of 3.9 percent relative to short-term bonds and a premium of 1.2 percent relative to long-term bonds.
ISSN:1945-7707
1945-7715
DOI:10.1257/mac.20110130