Due to wealth effects, the price of a security may vary with the realization of an underlying risk factor even when the security's dividend is independent of that factor. This paper highlights a crucial component of these effects hitherto ignored by the literature: changes in wealth do not alter...

In a single-commodity, pure-exchange, representative-agent economy with many Lucas' trees whose dividends are geometric Brownian motions, I study the comparative statics of the prices of these assets with respect to the current Brownian realization. As is well-known, due to wealth effects, a...