TY - JOUR
AU - Abel,Andrew B.
TI - Stock Prices Under Time-Varying Dividend Risk: An Exact Solution In An Infinite-Horizon General Equilibrium Model
JF - National Bureau of Economic Research Working Paper Series
VL - No. 2621
PY - 1988
Y2 - June 1988
DO - 10.3386/w2621
UR - http://www.nber.org/papers/w2621
L1 - http://www.nber.org/papers/w2621.pdf
N1 - Author contact info:
Andrew B. Abel
The Wharton School
University of Pennsylvania
2315 Steinberg Hall - Dietrich Hall
Philadelphia, PA 19104-6367
Tel: 215/898-4801
Fax: 215/573-7244
E-Mail: abel@wharton.upenn.edu
AB - The effects on asset prices of changes in risk are studied in a general equilibrium model in which the conditional risk evolves stochastically over time. The savings decisions of consumers take account of the fact that conditional risk is a serially correlated random variable. By restricting the specification of consumers' preferences and the stochastic specification of dividends, it is possible to obtain an exact solution for the prices of the aggregate stock and riskless one-period bonds. An increase in the conditional risk reduces the stock price if and only if the elasticity marginal utility is less than one.
ER -