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Finance Seminar

Thursday, October 24, 2019
4:00pm to 5:00pm
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Baxter B125
Heterogeneity and Asset Prices: A Different Approach
Stavros Panageas, Associate Professor of Finance, Anderson School of Management, UCLA,

Abstract: We develop a tractable asset-pricing framework characterized by imperfect risk sharing among cohorts, who experience different levels of integrated life-time endowments. While all asset-pricing implications stem from the heterogeneity of consumption among investors, cross-sectional measures of inequality are non-volatile, only weakly related to asset prices, and far more persistent than the price-to-dividend ratio. We show how to identify a marginal agent's consumption growth in this framework by utilizing cross-sectional information. Our proposed notion of marginal-agent consumption growth exhibits different and more volatile low-frequency variation than the aggregate consumption growth per capita, which is normally used in representative agent models. These low frequency movements in our measure of marginal agent consumption growth can explain a large portion of the low frequency movements in real interest rates and, when combined with recursive preferences, can account quantitatively for the stylized asset-pricing facts (high market price of risk, equity premium, volatility, and return predictability).

Written with Nicolae Garleanu (UC Berkeley-Haas and NBER)

Finance Seminars at Caltech are funded through the generous support of The Ronald and Maxine Linde Institute of Economic and Management Sciences (

For more information, please contact Sabrina Hameister by phone at 626-395-4228 or by email at