TY  - JOUR
AU  - Brav,Alon
AU  - Constantinides,George M.
AU  - Geczy,Christopher C.
TI  - Asset Pricing with Heterogeneous Consumers and Limited Participation: Empirical Evidence
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8822
PY  - 2002
Y2  - March 2002
UR  - http://www.nber.org/papers/w8822
L1  - http://www.nber.org/papers/w8822.pdf
N1  - Author contact info:
Alon Brav
Fuqua School of Business
Duke University
One Towerview Drive
Durham, NC 27708
Tel: 919/660-2908
Fax: 919/684-2818
E-Mail: brav@duke.edu

George M. Constantinides
The University of Chicago
Booth School of Business
5807 South Woodlawn Avenue
Chicago, IL  60637
Tel: 773/702-7258
Fax: 773/753-8045
 (773) 753-8045
E-Mail: gmc@ChicagoBooth.edu

Christopher Geczy
Finance Department
Wharton School
University of Pennsylvania
3620 Locust Walk, SH-DH
Philadelphia, PA 19096-6367
E-Mail: geczy@wharton.upenn.edu
AB  - We present evidence that the equity premium and the premium of value stocks over growth stocks are explained in the 1982 1996 period with a stochastic discount factor (SDF) calculated as the weighted average of individual households' marginal rate of substitution with low and economically plausible values of the relative risk aversion (RRA) coefficient.  Household consumption of non-durables and services is reconstructed from the CEX database.  Since the above premia are not explained with a SDF calculated as the per capita marginal rate of substitution with low value of the RRA coefficient, the evidence supports the hypothesis of incomplete consumption insurance.  We also present evidence is that a SDF calculated as the per capita marginal rate of substitution is better able to explain the equity premium and does so with a lower value of the RRA coefficient, as the definition of asset holders is tightened to recognize the limited participation of households in the capital market.
ER  -