The lucas orchard
By: Ian Martin
Contributors: National Bureau of Economic Research
Series: NBER working paper series -- working paper 17563; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 17563.
Publisher: National Bureau of Economic Research
Published: 2011
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "This paper investigates the behavior of asset prices in an endowment economy in which a representative agent with power utility consumes the dividends of multiple assets.  The assets are Lucas trees; a collection of Lucas trees is a Lucas orchard.  The model generates return correlations that vary endogenously, spiking at times of disaster.  Since disasters spread across assets, the model generates large risk premia even for assets with stable fundamentals.  Very small assets may comove endogenously and hence earn positive risk premia even if their fundamentals are independent of the rest of the economy.  I provide conditions under which the variation in a small asset's price-dividend ratio can be attributed almost entirely to variation in its risk premium"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 1/10/2012.

Includes bibliographical references.

Also available in print.

System requirements: Adobe Acrobat Reader.

Mode of access: World Wide Web.