Risk Premiums, Nominal Rigidities, and Limited Asset Market Participation

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 t...

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Bibliographic Details
Published inJournal of money, credit and banking Vol. 53; no. 7; pp. 1899 - 1921
Main Authors MENNA, LORENZO, TIRELLI, PATRIZIO
Format Journal Article
LanguageEnglish
Published Columbus Ohio State University Press 01.10.2021
Subjects
Asset pricing
Business cycle
Business cycles
DSGE
Equity premium
Households
Income distribution
Income redistribution
Limited asset market participation
Organizational structure
Ownership
Premiums
Prices
Profit margins
Risk premiums
Sticky prices
Technology
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Summary: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.
Bibliography:The opinions expressed here are those of the author Lorenzo Menna and do not necessarily represent Banco de Mexico's or its board of governors' opinions.
ISSN:0022-2879
1538-4616
DOI:10.1111/jmcb.12793