The market \(p_t/y_t\) ratio (left panel) and conditional standard deviation of the market return (right panel), both as a function of the volatility state \(\sigma_t\) and expressed in annual terms. Three cases are shown, the frictionless case (\(\lambda=0\)), our benchmark (\(\lambda=0.31\)), and a high segmentation case (\(\lambda=0.5\)). The aggregate endowment growth is fixed at its unconditional mean. The vertical dashed line is the unconditional mean \(\bar{\sigma}\).