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Overlapping Generations and Representative Agent Models of the Equity Premia: Implications from a Growing Economy

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  • Kevin D. Salyer

Abstract

This paper compares the risk premia on stock (both conditional and unconditional) implied by a class of overlapping generations and re presentative agent models in an exchange economy with stochastic endo wment growth rates. It is shown that, when shocks are independently d istributed, the models are observationally equivalent. However, with positively autocorrelated growth rates, the risk premia can become ne gative in a representative agent model, while bounded above zero in a n overlapping generations model. These results are interpreted via th e consumption-based capital asset pricing model and highlight the end ogenous consumption levels in an overlapping generations model.

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  • Kevin D. Salyer, 1988. "Overlapping Generations and Representative Agent Models of the Equity Premia: Implications from a Growing Economy," Canadian Journal of Economics, Canadian Economics Association, vol. 21(3), pages 565-578, August.
    • Handle: RePEc:cje:issued:v:21:y:1988:i:3:p:565-78
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    Cited by:

    1. Azeredo, Francisco, 2007. "The Equity Premium: A Deeper Puzzle," University of California at Santa Barbara, Economics Working Paper Series qt6ks5p6v5, Department of Economics, UC Santa Barbara.
    2. Francisco Azeredo, 2014. "The equity premium: a deeper puzzle," Annals of Finance, Springer, vol. 10(3), pages 347-373, August.

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