Aggregate Implications of Micro Asset Market Segmentation · All figures

Figure 3. Conditional returns

The expected market return, risk free rate, and expected excess return (risk premium) as a function of the volatility state \(\sigma_t\), all expressed in annual terms. The aggregate endowment growth is fixed at is unconditional mean. The vertical dashed line is the unconditional mean \(\bar{\sigma}\).

Figure 3. Conditional returns