Private Equity Premium and Aggregate Uncertainty in a Model of Uninsurable Investment Risk
This paper studies the quantitative properties of a general equilibrium model where a continuum of heterogeneous entrepreneurs are subject to aggregate as well as idiosyncratic risks under the presence of a borrowing constraint. The calibrated model matches the highly skewed wealth and income distri...
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| Veröffentlicht in: | The B.E. journal of macroeconomics 2011-01, Vol.11 (1), p.1-34 |
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| container_title | The B.E. journal of macroeconomics |
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| creator | Covas, Francisco Fujita, Shigeru |
| description | This paper studies the quantitative properties of a general equilibrium model where a continuum of heterogeneous entrepreneurs are subject to aggregate as well as idiosyncratic risks under the presence of a borrowing constraint. The calibrated model matches the highly skewed wealth and income distributions of entrepreneurs. We provide an accurate solution to the model despite significant nonlinearities that are absent in the economy with uninsurable labor income risk. The model is capable of generating the average private equity premium of roughly 3% and a low risk-free rate. The model also produces procyclicality of the risk-free rate and countercyclicality of the private equity premium. The countercyclicality of the equity premium is largely driven by tightening (loosening) of financing constraints during recessions (booms). |
| doi_str_mv | 10.2202/1935-1690.2216 |
| format | Article |
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The countercyclicality of the equity premium is largely driven by tightening (loosening) of financing constraints during recessions (booms).</description><subject>approximate aggregation</subject><subject>Budget constraint</subject><subject>Business investment</subject><subject>Economic models</subject><subject>Entrepreneurs</subject><subject>Equity</subject><subject>Financial risks</subject><subject>General economic equilibrium</subject><subject>Income distribution</subject><subject>Investment planning</subject><subject>Investment strategies</subject><subject>Private equity</subject><subject>private equity premium</subject><subject>Risk management</subject><subject>Studies</subject><subject>Uncertainty</subject><subject>uninsurable investment risk</subject><issn>1935-1690</issn><issn>2194-6116</issn><issn>1935-1690</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2011</creationdate><recordtype>article</recordtype><recordid>eNpd0M9LwzAUB_AiCur06tXgxVNnfrbJcQx_wcQpE8VLSLuXEW1TTVpx_70tkyGe8uN93uPxTZITgseUYnpBFBMpydTwJNlOcrD92P1z308OY3zDWDAmxEHyOg_uy7SALj87167RPEDtuhoZv0ST1SrAaig--RJCa5zvhfPIoLtmCRVqbF9xPnbBFBWgW_8Fsa3Bt-jRxfejZM-aKsLx7zlKnq4uF9ObdHZ_fTudzNKSU9amoJSlguVUGmyt5MLygktpSSaYBVCsYMoURSYFFpIsFZakpHxpDVjKsLRslJxv5n6E5rPrN9C1iyVUlfHQdFErjBnPBcW9PPsn35ou-H45rSjGOZFc9Wi8QWVoYgxg9UdwtQlrTbAegtZDlnrIUg9B9w2nmwYoG-_ilueUqIxJwXuRboSLLXxvgQnvOstZLvTDgmslXq4Xcv6sH9gP7uSIow</recordid><startdate>20110101</startdate><enddate>20110101</enddate><creator>Covas, Francisco</creator><creator>Fujita, Shigeru</creator><general>De Gruyter</general><general>Berkeley Electronic Press</general><scope>BSCLL</scope><scope>OQ6</scope><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope></search><sort><creationdate>20110101</creationdate><title>Private Equity Premium and Aggregate Uncertainty in a Model of Uninsurable Investment Risk</title><author>Covas, Francisco ; Fujita, Shigeru</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c423t-e99f253728a0ff845f4b488f1653fee93b39abb6850581d9081c24dfaef2308f3</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2011</creationdate><topic>approximate aggregation</topic><topic>Budget constraint</topic><topic>Business investment</topic><topic>Economic models</topic><topic>Entrepreneurs</topic><topic>Equity</topic><topic>Financial risks</topic><topic>General economic equilibrium</topic><topic>Income distribution</topic><topic>Investment planning</topic><topic>Investment strategies</topic><topic>Private equity</topic><topic>private equity premium</topic><topic>Risk management</topic><topic>Studies</topic><topic>Uncertainty</topic><topic>uninsurable investment risk</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Covas, Francisco</creatorcontrib><creatorcontrib>Fujita, Shigeru</creatorcontrib><collection>Istex</collection><collection>ECONIS</collection><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><jtitle>The B.E. journal of macroeconomics</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Covas, Francisco</au><au>Fujita, Shigeru</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Private Equity Premium and Aggregate Uncertainty in a Model of Uninsurable Investment Risk</atitle><jtitle>The B.E. journal of macroeconomics</jtitle><date>2011-01-01</date><risdate>2011</risdate><volume>11</volume><issue>1</issue><spage>1</spage><epage>34</epage><pages>1-34</pages><issn>1935-1690</issn><issn>2194-6116</issn><eissn>1935-1690</eissn><abstract>This paper studies the quantitative properties of a general equilibrium model where a continuum of heterogeneous entrepreneurs are subject to aggregate as well as idiosyncratic risks under the presence of a borrowing constraint. 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| identifier | ISSN: 1935-1690 |
| ispartof | The B.E. journal of macroeconomics, 2011-01, Vol.11 (1), p.1-34 |
| issn | 1935-1690 2194-6116 1935-1690 |
| language | eng |
| recordid | cdi_proquest_miscellaneous_900347520 |
| source | De Gruyter journals |
| subjects | approximate aggregation Budget constraint Business investment Economic models Entrepreneurs Equity Financial risks General economic equilibrium Income distribution Investment planning Investment strategies Private equity private equity premium Risk management Studies Uncertainty uninsurable investment risk |
| title | Private Equity Premium and Aggregate Uncertainty in a Model of Uninsurable Investment Risk |
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