A Quantitative Study of the Role of Wealth Inequality on Asset Prices
Economic Quarterly
Winter 2008
This article studies the equilibrium properties of asset prices in a Lucas tree model when agents display a concave coefficient of absolute risk tolerance. This preference specification introduces a role for wealth inequality even under the presence of complete markets. The article finds evidence suggesting that the role of wealth inequality on asset prices may be non-negligible. The equity premium in the unequal economy is between 24 and 47 basis points larger than the equity premium displayed in an egalitarian economy.
Subscribe to Economic Quarterly
Receive an email notification when Economic Quarterly is posted online:
Contact Us