Asset Pricing in Economies with Frictions

Luttmer, Erzo G. J.

doi:10.2307/2171838

Cited by 242 publications

(166 citation statements)

References 51 publications

(49 reference statements)

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“…Another observation is that people with limited access to capital markets make investments in human capital that result in very uneven consumption over time. 27 For example, Aiyagari and Gertler (1991), Alvarez and Jerman (2000), Bansal and Coleman (1996), Basak and Cuoco (1998), Constantinides, Donaldson and Mehra (2002), Danthine, Donaldson and Mehra (1992), Daniel and Marshall (1997), He and Modest (1995), Heaton and Lucas (1996), and Luttmer (1996), McGrattan and Prescott (2001), and Storesletten, Telmer and Yaron (1999). 28 Attanasio, Banks and Tanner (2002), Brav, Constantinides and Geczy (2002), Brav and Geczy (1995), Mankiw andZeldes (1991), andVissing-Jorgensen (2002).…”

Section: Estimating Equity Risk Premium Versus Estimating Risk Aversimentioning

confidence: 99%

The Equity Premium in Retrospect

2003

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Section: Estimating Equity Risk Premium Versus Estimating Risk Aversimentioning

confidence: 99%

The Equity Premium in Retrospect

2003

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“…which is featured in the work Luttmer (1992Luttmer ( , 1996 and He and Modest (1995). To understand better this inequality, observe that positive scalar multiples r ≥ 0 of a positive payoff Q t+1 ≥ 0 when added to composite equilibrium portfolio payoff of person i at date t + 1 will continue to satisfy the solvency constraint.…”

Section: Solvency Constraintsmentioning

confidence: 98%

“…One tractable class of models that features incomplete risk sharing is the one where agents have access to complete markets but where the total value of their financial wealth is constrained (from below) in a state contingent manner. Following Luttmer (1992Luttmer ( , 1996 and He and Modest (1995), I refer to such constraints as solvency constriants. In contrast to the models with incomplete contracting based on information constraints, I no longer distinguish between G t and F t ; but I do allow for some ex ante heterogeneity in endowments or labor income.…”

Section: Solvency Constraintsmentioning

confidence: 99%

Risk Pricing over Alternative Investment Horizons

Hansen

2013

Handbook of the Economics of Finance

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I explore methods that characterize model-based valuation of stochastically growing cash flows. Following previous research, I use stochastic discount factors as a convenient device to depict asset values. I extend that literature by focusing on the impact of compounding these discount factors over alternative investment horizons. In modeling cash flows, I also incorporate stochastic growth factors. I explore dynamic value decomposition (DVD) methods that capture concurrent compounding of a stochastic growth and discount factors in determining risk-adjusted values.These methods are supported by factorizations that extract martingale components of stochastic growth and discount factors, These components reveal which ingredients of a model have long-term implications for valuation. The resulting martingales imply convenient changes in measure that are distinct from those used in mathematical finance, and they provide the foundations for analyzing model-based implications for the term structure of risk prices. As an illustration of the methods, I re-examine some recent preference based models. I also use the martingale extraction to revisit the value implications of some benchmark models with market restrictions and heterogenous consumers. * I thank Rui Cui, Mark Hendricks, Eric Renault, Grace Tsiang and especially Fernando Alvarez for helpful discussions in preparing this chapter.

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“…For instance, in an influential paper Zeldes (1989) studies whether the presence of borrowing constraints can explain households' violation of consumption Euler equations. Luttmer (1996Luttmer ( , 1999) studies asset pricing in the presence of financial frictions, which turn conventional asset pricing relationships into inequality conditions. Pakes, Porter, Ho, and Ishii (2005) and Andrews, Berry, and Jia (2004) provide examples of inequality moment conditions derived from models of industrial organization.…”

Section: Introductionmentioning

confidence: 99%