Date of Original Version

5-2004

Type

Article

Abstract or Description

In this paper, we develop an agency-theoretic extension of the Lucas asset pricing model and examine the resulting asset price dynamics. In the model, an agent of the firm can expand or contract the firm's output and dividend payments in response to exogenous shocks, although expansions become increasingly costly for the agent to maintain. Analysis of numerical simulations shows that the time-series of equilibrium asset prices exhibits both significant time-varying conditional heteroskedasticity, and longer memory persistence.

DOI

10.1007/s10436-004-0001-8

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Published In

Annals of Finance, 1, 51-72.