Comparative Statics of Asset Prices: the effect of other assets' risk


Autoria(s): Diasakos, Theodoros M
Data(s)

28/11/2013

28/11/2013

2013

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

http://hdl.handle.net/10943/511

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