Handbook of the Equity Risk Premium

CHAPTER 10 Distribution Risk and Equity Returns*

Jean-Pierre Danthine

Swiss Finance Institute, University of Lausanne and CEPR

John B. Donaldson, Paolo Siconolfi

Columbia University

1. Introduction

2. The Business Cycle and the Labor Market

2.1. The Stylized Facts of the Business Cycle

2.2. The Labor Market

3. The Model Economy

3.1. Workers

3.2. Shareholders

3.3. The Firm

3.4. Equilibrium

3.5. Numerical Procedures and Calibration

4. An Economy with Distribution Risk Only

5. Adding Aggregate Uncertainty

6. Comparative Dynamics and Welfare Assessment

6.1. Changes in the Correlation of Productivity and Distribution Shocks

6.2. Changes in Risk Aversion and the Conditional Mean of the Distribution Shock

6.3. Other Comparative Dynamic Tests