Journal Article
A quantitative study of the role of wealth inequality on asset prices
Abstract: 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.
Keywords: Prices;
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Bibliographic Information
Provider: Federal Reserve Bank of Richmond
Part of Series: Economic Quarterly
Publication Date: 2008
Volume: 94
Issue: Win
Pages: 73-96