Heterogeniety and Limited Stock Market Participation
Copyright policy )Heterogeniety and Limited Stock Market Participation
We derive the equilibrium interest rate and risk premiums using recursive utility with heterogeneity in a continuous time model. We solve the associated sup-convolution problem, and obtain explicit closed form solutions. The heterogeneous two-agent model is calibrated to the data of Mehra and Prescott (1985) assuming the market portfolio is not a proxy of the wealth portfolio. This results in plausible values for the preference parameters of the two agents under various assumptions for the wealth portfolio.
utility gradients, VDP::Samfunnsvitenskap: 200::Økonomi: 210::Samfunnsøkonomi: 212, recursive utility, the risk-free rate puzzle, the stochastic maximum principle, limited market participation, the equity premium puzzle, heterogeneity, The equity premium puzzle; the risk-free rate puzzle; recursive utility; the stochastic maximum principle; heterogeneity; limited market participation, jel: jel:D90, jel: jel:D51, jel: jel:E21, jel: jel:D53, jel: jel:G12, jel: jel:G10
utility gradients, VDP::Samfunnsvitenskap: 200::Økonomi: 210::Samfunnsøkonomi: 212, recursive utility, the risk-free rate puzzle, the stochastic maximum principle, limited market participation, the equity premium puzzle, heterogeneity, The equity premium puzzle; the risk-free rate puzzle; recursive utility; the stochastic maximum principle; heterogeneity; limited market participation, jel: jel:D90, jel: jel:D51, jel: jel:E21, jel: jel:D53, jel: jel:G12, jel: jel:G10
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