Heterogeneous Households under Uncertainty / Pietro Veronesi.

By:

Veronesi, Pietro

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w25448.Publication details: Cambridge, Mass. National Bureau of Economic Research 2019.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: I characterize a dynamic economy under general distributions of households' risk tolerance, endowments, and beliefs about long-term growth. As the economy expands and the stock market rises (a) the fraction of households with declining consumption-share increases; (b) the wealth-share of high risk-tolerant households increases; (c) richer households' wealth display a higher CAPM beta; and (d) households' portfolios change qualitatively. A log-utility investor for instance borrows in contractions but lends in expansions. Variations in uncertainty and expected growth generate trading volume due to risk sharing. Higher uncertainty increases stock prices, risk premiums, volatility, wealth inequality and the dispersion of portfolio holdings, consistently with the events in the late 1990s.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w25448 (Browse shelf(Opens below))	Not For Loan

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January 2019.

I characterize a dynamic economy under general distributions of households' risk tolerance, endowments, and beliefs about long-term growth. As the economy expands and the stock market rises (a) the fraction of households with declining consumption-share increases; (b) the wealth-share of high risk-tolerant households increases; (c) richer households' wealth display a higher CAPM beta; and (d) households' portfolios change qualitatively. A log-utility investor for instance borrows in contractions but lends in expansions. Variations in uncertainty and expected growth generate trading volume due to risk sharing. Higher uncertainty increases stock prices, risk premiums, volatility, wealth inequality and the dispersion of portfolio holdings, consistently with the events in the late 1990s.