Consumption asset pricing with stable shocks---exploring a solution and its implications for mean equity returns (Q1853201)
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English | Consumption asset pricing with stable shocks---exploring a solution and its implications for mean equity returns |
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Consumption asset pricing with stable shocks---exploring a solution and its implications for mean equity returns (English)
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21 January 2003
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We study the consumption based asset pricing model due to \textit{R. E. Lucas jun.} [Econometrica 46, 1429-1445 (1978; Zbl 0398.90016)]. The exogenous endowment sequence is modeled as a linear stochastic process driven by stable shocks in an otherwise standard framework. The Gaussian process emerges as a special case. We derive exact analytical solutions for asset prices and returns, and provide conditions under which these exist. We also study the ability of the model to generate realistic values of observed mean rates of return.
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asset pricing
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stable shocks
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mean rates of return
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