Asset pricing implications of Pareto optimality with private information

Please use this identifier to cite or link to this item: http://dspace.mediu.edu.my:8181/xmlui/handle/10419/19614

Title:	Asset pricing implications of Pareto optimality with private information
Keywords:	ddc:330 Kapitalmarkttheorie Capital Asset Pricing Model Pareto-Optimum Agency Theory Verbraucherausgaben USA
Issue Date:	16-Oct-2013
Description:	In this paper, we consider a dynamic economy in which the agents in the economy are privately informed about their skills, which evolve stochastically over time in an arbitrary fashion. We consider an asset pricing equilibrium in which equilibrium quantities are constrained Pareto optimal. Under the assumption that agents have constant relative risk aversion, we derive a novel asset pricing kernel for financial asset returns. The kernel equals the reciprocal of the gross growth of the γth moment of the consumption distribution, where – is the coefficient of relative risk aversion. We use data from the consumer expenditure survey (CEX) and show that the new stochastic discount factor performs better than existing stochastic discount factors at rationalizing the equity premium. However, its ability to simultaneously explain the equity premium and the expected return to the Treasury bill is about the same as existing discount factors.
URI:	http://koha.mediu.edu.my:8181/xmlui/handle/10419/19614
Other Identifiers:	http://hdl.handle.net/10419/19614 ppn:500983119 RePEc:zbw:bubdp1:4223
Appears in Collections:	EconStor

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