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Heterogeniety and limited stock market participation

Aase, Knut K.
Working paper
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URI
http://hdl.handle.net/11250/194963
Date
2014-02
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  • Discussion papers (FOR) [509]
Abstract
We derive the equilibrium interest rate and risk premiums using

recursive utility with heterogeneity in a continuous time model. Two

ordinally equivalent versions are considered, each associated with a

di erent set of risk premiums and interest rate. The rst version has

consumption history dependent marginal utility and is homogeneous of

degree one in consumption, the second version is homothetic. When

solving the resulting sup-convolution problem, this gives non-trivial

results. A heterogeneous two-agent model is calibrated to the data

of Mehra and Prescott (1985) assuming the market portfolio is not

a proxy of the wealth portfolio.
Publisher
FOR
Series
Discussion paper;05/14

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