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Journal of Banking and Finance


• Asset pricing; • General equilibrium; • Equity premium; • Uninsurable labor income; • Limited stock market participation; • Heterogeneous preference; • Borrowing constraint


  1. S. Ahn
  2. K.J. Choi
  3. H.K. Koo


    1. BANKING
    2. FINANCE


      In this paper we study a simple two-period asset pricing model to understand the implications of uninsurable labor income risk and/or borrowing constraints, limited stock market participation, heterogeneous labor income volatilities, and heterogeneous preferences. We appraise the performance of each of these in matching moments of asset returns to the data and show that limited stock market participation generates a significantly large equity premium. We also show that the distribution of wealth between stock market participants and non-participants plays an important role in asset pricing, and that the effect of borrowing constraints on asset returns are similar to that of limited participation. Finally, we discuss the practical implications of our investigation, providing an appraisal of ongoing changes in asset returns.


      Vol 55, Tahun 2015


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