Comparative Statics of Asset Prices: the effect of other assets' risk
Data(s) |
28/11/2013
28/11/2013
2013
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Resumo |
Currently, financial economics is unable to predict changes in asset prices with respect to changes in the underlying risk factors, even when an asset's dividend is independent of a given factor. This paper takes steps towards addressing this issue by highlighting a crucial component of wealth effects on asset prices hitherto ignored by the literature. Changes in wealth do not only alter an agents risk aversion, but also her perceived 'riskiness' of a security. The latter enhances significantly the extent to which market- clearing leads to endogenously-generated correlation across asset prices, over and above that induced by correlation between payoffs, giving the appearance of 'contagion.' |
Identificador | |
Publicador |
University of St Andrews |
Relação |
SIRE DISCUSSION PAPER;SIRE-DP-2013-94 |
Palavras-Chave | #General Equilibrium Asset-Pricing #Geometric Brownian Motion #Contagion |
Tipo |
Working Paper |