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On the macro-financial implications of limited participation in asset markets
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Gaudio, Francesco Saverio (2022) On the macro-financial implications of limited participation in asset markets. PhD thesis, University of Warwick.
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Official URL: http://webcat.warwick.ac.uk/record=b3877492
Abstract
This thesis contributes to the literature focusing on the macroeconomic and asset pricing implications of limited asset market participation. In Chapter 1, I study the rise in financial market participation in the U.S. since the mid-1980s as a determinant of recent macro-financial trends. Within a two-agent Real Business Cycle model that distinguishes between stockholders and non-stockholders, an increase in stock market participation raises both the equity premium and the volatility of stock returns while reducing the average risk-free rate. I show that the participation trend can rationalize a spell of lower aggregate volatility but increased perceived risk in financial markets such as the Great Moderation, providing a novel explanation for the recent U.S. macro-financial phenomena. Chapter 2 provides novel evidence on the dynamic impact of supply shocks on consumption and income of households sorted according to their assetholding position. Using detailed household-level data, it empirically documents large redistributive effects, between assetholders and non-assetholders, of structurally identified neutral technology, investment-specific, and capital share shocks. This work shows that the dynamics of consumption inequality between the two groups of agents are well captured by a limited participation Real Business Cycle model and that the model matches asset pricing facts only in the presence of shocks that generate strongly procyclical consumption inequality, such as capital share shocks. Finally, Chapter 3 investigates how the availability of retirement accounts affects households’ consumption dynamics. A life-cycle model with income risk and borrowing constraints that distinguishes explicitly between direct and indirect stockholders is shown to predict the latter’s consumption to be relatively more reactive to fluctuations in earnings during working life. Using detailed household level expenditure data for the U.S., I find significant age-dependent heterogeneity in the two types of investors’ consumption responses to exogenous capital share shocks, in line with the model predictions. The results suggest that indirect stockholders play a primary role in shaping the transmission of aggregate shocks to stockholders’ consumption.
Item Type: | Thesis (PhD) | ||||
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Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HF Commerce H Social Sciences > HG Finance |
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Library of Congress Subject Headings (LCSH): | Macroeconomics, Capital market, Asset-backed financing, Assets (Accounting), Stockholders, Individual retirement accounts, Retirement income, Consumption (Economics), Supply and demand | ||||
Official Date: | July 2022 | ||||
Dates: |
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Institution: | University of Warwick | ||||
Theses Department: | Warwick Business School | ||||
Thesis Type: | PhD | ||||
Publication Status: | Unpublished | ||||
Supervisor(s)/Advisor: | Petrella, Ivan ; Vahey, Shaun P. | ||||
Format of File: | |||||
Extent: | xii, 212 pages : illustrations, charts. | ||||
Language: | eng |
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