We study whether structural change helps in rationalizing the declining equity premium observed in the data in the post-war period in the U.S. The recent literature on micro shocks and aggregate fluctuations finds that, when the portfolio of production technologies in use in an economy evolves over time, so do aggregate fluctuations. In particular, technological diversification tracks well low frequency movements in aggregate and industry level U.S. asset prices. We investigate whether the relation between structural change in aggregate consumption and aggregate volatility has implications or risky asset returns and their differentials with the risk-free return. Our preliminary results suggest that a generalized multi-sector Lucas-tree model, which can account for the structural change observed in the U.S., is able to pin down the low frequency dynamics of the U.S. equity premium over the period 1947-2010.

Structural change and the long run dynamics of the equity premium

Moro, Alessio;Merella Vincenzo;
2020-01-01

Abstract

We study whether structural change helps in rationalizing the declining equity premium observed in the data in the post-war period in the U.S. The recent literature on micro shocks and aggregate fluctuations finds that, when the portfolio of production technologies in use in an economy evolves over time, so do aggregate fluctuations. In particular, technological diversification tracks well low frequency movements in aggregate and industry level U.S. asset prices. We investigate whether the relation between structural change in aggregate consumption and aggregate volatility has implications or risky asset returns and their differentials with the risk-free return. Our preliminary results suggest that a generalized multi-sector Lucas-tree model, which can account for the structural change observed in the U.S., is able to pin down the low frequency dynamics of the U.S. equity premium over the period 1947-2010.
Asset pricing; equity premium; structural change
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11584/305268
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