SFB 303 Discussion Paper No. A - 381
Author: Constantinides, George
M., and Darrel Duffie
Title: Asset Pricing with Heterogeneous Consumers
Abstract: Empirical difficulties encountered by representative-consumer models
are resolved in an economy with heterogeneity in the form of uninsurable,
persistent, and heteroscedastic labor income shocks. Given the joint process
of arbitrage-free asset prices, dividends, and aggregate income, satisfying
a certain joint restriction, it is shown that these processes are supported
in the equilibrium of an economy with judiciously modeled income
heterogeneity. This restriction implies that the Euler equations of
per-capita consumption are replaced by Euler inequalities of per
capita-consumption. To the extent that these inequalities have been tested
so far, they have not been rejected with risk aversion coefficients as low
as one.
Keywords:
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Creation-Date: August 1992
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