TY  - JOUR
AU  - Abel,Andrew B.
TI  - Risk Premia and Term Premia in General Equilibrium
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6683
PY  - 1998
Y2  - August 1998
UR  - http://www.nber.org/papers/w6683
L1  - http://www.nber.org/papers/w6683.pdf
N1  - Author contact info:
Andrew B. Abel
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 equity premium consists of a term premium reflecting the longer maturity of equity relative to short-term bills, and a risk premium reflecting the stochastic nature of equity payoffs and the deterministic nature of payoffs on reckless bills.  This paper analyzes term premia and the risk premia in a general equilibrium model with catching up with the Joneses preferences and a novel formulation of leverage.  Closed-form solutions for moments of asset returns are derived.  First-order approximations illustrate the effects of parameters and provide an algorithm to match the means and variances of the riskless rate and the rate of return on equity.
ER  -