Download or read book Asset Pricing in a Production Economy with Heterogeneous Investors written by Jin E. Zhang and published by . This book was released on 2006 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper is a theoretical examination of the stochastic behavior of equilibrium asset prices in an economy consisting of a production process controlled by a state variable representing the state of technology. The investors with different degrees of risk aversion and time preferences trade and lend among themselves in order to maximize their individual utilities of life time consumption. The allocation of wealth fluctuates randomly among them and acts as a state variable against which each investor wants to hedge. This hedging motive complicates the investor's portfolio choice and the equilibrium in the production economy. A general method of constructing equilibrium asset prices is developed and the wealth effect in the general equilibrium is discussed.The equilibrium market prices of risks and risk-free rate in a production economy with one representative investor has been presented by Cox, Ingersoll and Ross (1985). Considerable progress has been made by Dumas (1989) and Vasicek (2005) on the case of heterogeneous investors, however a complete description of the general equilibrium in the production economy with heterogeneous investors is yet to be developed. That is the focus of this paper.This paper establishes an economic model for the equilibrium asset prices by solving the joint optimization problem with proper market clearing conditions. The equilibrium conditions of the two party dynamic game are written as a set of two highly entangled nonlinear partial differential equations. The result can be extended to handle the case of multiple heterogeneous investors.
Download or read book Asset Pricing for Dynamic Economies written by Sumru Altug and published by Cambridge University Press. This book was released on 2008-09-11 with total page 686 pages. Available in PDF, EPUB and Kindle. Book excerpt: This introduction to general equilibrium modelling takes an integrated approach to the analysis of macroeconomics and finance. It provides students, practitioners, and policymakers with an easily accessible set of tools that can be used to analyze a wide range of economic phenomena. Key features: • Provides a consistent framework for understanding dynamic economic models • Introduces key concepts in finance in a discrete time setting • Develops simple recursive approach for analyzing a variety of problems in a dynamic, stochastic environment • Sequentially builds up the analysis of consumption, production, and investment models to study their implications for allocations and asset prices • Reviews business cycle analysis and the business cycle implications of monetary and international models • Covers latest research on asset pricing in overlapping generations models and on models with borrowing constraints and transaction costs • Includes end-of-chapter exercises allowing readers to monitor their understanding of each topic Online resources are available at www.cambridge.org/altug_labadie
Download or read book Asset Pricing with Heterogeneous Investors and Portfolio Constraints written by Georgy Chabakauri and published by . This book was released on 2014 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study general equilibrium in a Lucas (1978) economy with one consumption good and two investors with heterogeneous risk aversions and beliefs about aggregate consumption growth rate, and portfolio constraints. We provide a comprehensive comparison of various constraints, and show which of them and under what conditions help match the properties of asset prices in the data. We find that borrowing and short-sale constraints decrease stock return volatilities, whereas limited stock market participation constraints can increase volatilities even when investors have identical preferences and beliefs. Moreover, borrowing constraints generate spikes in interest rates and stock return volatilities when the constraint starts to bind. Finally, we find that short-sale constraints have smaller impact on asset prices than borrowing constraints, consistent with the empirical evidence on short-sale bans in the aftermath of 2007-09 financial crisis.
Download or read book Asset Pricing with Heterogeneous and Constrained Investors written by Lei Shi and published by . This book was released on 2019 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze the joint effect of borrowing and short-sale constraints in a dynamic economy populated by two constrained investors with heterogeneous risk aversions and beliefs. We find that equilibrium prices adjust in such a way that the constraints never simultaneously bind. When the constraints are tight, we observe a regime switch behavior (discontinuities) in the risk-free rate and market price of risk at a critical state, where two equilibria exist, i.e., either constraint can be binding. Stock return volatility is the lowest at the critical state. Imposing a ban on short-sales at the same time when access to credit is restrictive or tightening borrowing during a short-sale ban can potentially move the equilibrium away from the critical state, thus increase stock return volatility rather than reducing it.
Download or read book A Theory of Asset Pricing Based on Heterogeneous Information written by Elias Albagli and published by . This book was released on 2011 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a theory of asset prices that emphasizes heterogeneous information as the main element determining prices of different securities. Our main analytical innovation is in formulating a model of noisy information aggregation through asset prices, which is parsimonious and tractable, yet flexible in the specification of cash flow risks. We show that the noisy aggregation of heterogeneous investor beliefs drives a systematic wedge between the impact of fundamentals on an asset price, and the corresponding impact on cash flow expectations. The key intuition behind the wedge is that the identity of the marginal trader has to shift for different realization of the underlying shocks to satisfy the market-clearing condition. This identity shift amplifies the impact of price on the marginal trader's expectations. We derive tight characterization for both the conditional and the unconditional expected wedges. Our first main theorem shows how the sign of the expected wedge (that is, the difference between the expected price and the dividends) depends on the shape of the dividend payoff function and on the degree of informational frictions. Our second main theorem provides conditions under which the variability of prices exceeds the variability for realized dividends. We conclude with two applications of our theory. First, we highlight how heterogeneous information can lead to systematic departures from the Modigliani-Miller theorem. Second, in a dynamic extension of our model we provide conditions under which bubbles arise -- National Bureau of Economic Research web site.
Download or read book Asset Pricing and Portfolio Choice Theory written by Kerry Back and published by Oxford University Press. This book was released on 2010-09-10 with total page 504 pages. Available in PDF, EPUB and Kindle. Book excerpt: In Asset Pricing and Portfolio Choice Theory, Kerry E. Back at last offers what is at once a welcoming introduction to and a comprehensive overview of asset pricing. Useful as a textbook for graduate students in finance, with extensive exercises and a solutions manual available for professors, the book will also serve as an essential reference for scholars and professionals, as it includes detailed proofs and calculations as section appendices. Topics covered include the classical results on single-period, discrete-time, and continuous-time models, as well as various proposed explanations for the equity premium and risk-free rate puzzles and chapters on heterogeneous beliefs, asymmetric information, non-expected utility preferences, and production models. The book includes numerous exercises designed to provide practice with the concepts and to introduce additional results. Each chapter concludes with a notes and references section that supplies pathways to additional developments in the field.
Download or read book A New Model of Capital Asset Prices written by James W. Kolari and published by Springer Nature. This book was released on 2021-03-01 with total page 326 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book proposes a new capital asset pricing model dubbed the ZCAPM that outperforms other popular models in empirical tests using US stock returns. The ZCAPM is derived from Fischer Black’s well-known zero-beta CAPM, itself a more general form of the famous capital asset pricing model (CAPM) by 1990 Nobel Laureate William Sharpe and others. It is widely accepted that the CAPM has failed in its theoretical relation between market beta risk and average stock returns, as numerous studies have shown that it does not work in the real world with empirical stock return data. The upshot of the CAPM’s failure is that many new factors have been proposed by researchers. However, the number of factors proposed by authors has steadily increased into the hundreds over the past three decades. This new ZCAPM is a path-breaking asset pricing model that is shown to outperform popular models currently in practice in finance across different test assets and time periods. Since asset pricing is central to the field of finance, it can be broadly employed across many areas, including investment analysis, cost of equity analyses, valuation, corporate decision making, pension portfolio management, etc. The ZCAPM represents a revolution in finance that proves the CAPM as conceived by Sharpe and others is alive and well in a new form, and will certainly be of interest to academics, researchers, students, and professionals of finance, investing, and economics.
Download or read book Asset Pricing in Production Economies When Capital Inputs are Heterogeneous written by Nicole Branger and published by . This book was released on 2016 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies asset pricing implications of heterogeneity across capital inputs. We build a general equilibrium model including two types of capital. The agents in our economy have Epstein and Zin (1989) preferences and technology is exposed to long-run risks in productivity growth. Following the literature, production inputs differ with respect to rates of depreciation and adjustment cost. We explain both, differences in returns and investment behaviour for two types of capital. Model implied asset pricing and relevant macroeconomic moments are in line with empirical data. To fully capture the effect of small but persistent shocks to the expected growth rate of productivity in a DSGE framework, the model is solved with a global non-linear solution algorithm. It is shown, when including long-run risks in productivity growth in conjunction with capital heterogeneity, using local Taylor-expansion based methods will not suffice, to obtain a satisfactory accuracy of approximation.
Download or read book Heterogeneity and Asset Prices written by Nicolae Garleanu and published by . This book was released on 2020 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a tractable asset-pricing framework characterized by imperfect risk sharing among cohorts, who experience different levels of integrated life-time endowments. While all asset-pricing implications stem from the heterogeneity of consumption among investors, cross-sectional measures of inequality are non-volatile, only weakly related to asset prices, and far more persistent than the price-to-dividend ratio. We show how to identify a marginal agent's consumption growth in this framework by utilizing cross-sectional information. Our proposed notion of marginal-agent consumption growth exhibits different and more volatile low-frequency variation than the aggregate consumption growth per capita, which is normally used in representative agent models. These low frequency movements in our measure of marginal agent consumption growth can explain a large portion of the low frequency movements in real interest rates and, when combined with recursive preferences, can account quantitatively for the stylized asset-pricing facts (high market price of risk, equity premium, volatility, and return predictability).
Download or read book Asset Pricing Model with Heterogeneous Investment Horizons written by and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we study the dynamics of a simple asset pricing model describing the trading activity of heterogeneous agents in a "stylized" market. The economy in the model contains two assets: a bond with risk-less return and a dividend paying stock. The price of the stock is determined through market clearing condition. Traders are speculators described as expected utility maximizers with heterogeneous beliefs about future stock price and with heterogeneous estimation of risk. In particular, we consider traders who base their investment decision on different time horizons and we analyze the effect of these differences on the price dynamics. Under suitable parameterization, the stock no-arbitrage "fundamental" price can emerge as a stable fixed point of the model dynamics. For different parameterizations, however, the market shows cyclical or chaotic price dynamics with speculative bubbles and crashes. We find that the sole heterogeneity of agents with respect to their time horizons is not enough to guarantee the instability of the fundamental price and the emergence of non-trivial price dynamics. However, if different groups of agents are characterized by different trading behaviors, the introduction of heterogeneous investment horizons can help to decrease the stability region of the "fundamental" fixed point. The role of time horizons turns out to be different for different trade behaviors and, in general, depends on the whole ecology of agents' beliefs. We demonstrate this effect discussing a case in which the increase of fundamentalists time horizons can lead to cyclical or chaotic price behavior, while the same increase for the chartists helps to stabilize the fundamental price. -- Asset pricing ; Heterogenous beliefs ; Investment horizons
Download or read book Asset Pricing with Heterogeneous Beliefs written by Suleyman Basak and published by . This book was released on 2004 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article studies the dynamic behavior of security prices in the presence of investors' heterogeneous beliefs. We provide a tractable continuous-time pure-exchange model and highlight the mechanism through which investors' differences of opinion enter into security prices. In the determination of equilibrium, we employ a representative investor with stochastic weights and solve for all economic quantities in closed form, including the perceived market prices of risk and interest rate. The basic analysis is generalized to incorporate multiple sources of risk, disagreement about nonfundamentals, and multiple investors. Other applications involving multiple goods and nominal asset pricing within monetary economies are discussed.
Download or read book Heterogeneity and Asset Prices written by Nicolae B. Gârleanu and published by . This book was released on 2020 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a tractable asset-pricing framework characterized by imperfect risk sharing among cohorts, who experience different levels of integrated life-time endowments. While all asset-pricing implications stem from the heterogeneity of consumption among investors, cross-sectional measures of inequality are non-volatile, only weakly related to asset prices, and far more persistent than the price-to-dividend ratio. We show how to identify a marginal agent's consumption growth in this framework by utilizing cross-sectional information. Our proposed notion of marginal-agent consumption growth exhibits different and more volatile low-frequency variation than the aggregate consumption growth per capita, which is normally used in representative agent models. These low frequency movements in our measure of marginal agent consumption growth can explain a large portion of the low frequency movements in real interest rates and, when combined with recursive preferences, can account quantitatively for the stylized asset-pricing facts (high market price of risk, equity premium, volatility, and return predictability).
Download or read book Asset Pricing with Heterogeneous Preferences Beliefs and Portfolio Constraints written by Georgy Chabakauri and published by . This book was released on 2015 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: Portfolio constraints are widespread and have significant effects on asset prices. This paper studies the effects of constraints in a dynamic economy populated by investors with different risk aversions and beliefs about the rate of economic growth. The paper provides a comparison of various constraints and conditions under which these constraints help match certain empirical facts about asset prices. Under these conditions, borrowing and short-sale constraints decrease stock return volatilities, whereas limited stock market participation constraints amplify them. Moreover, borrowing constraints generate spikes in interest rates and volatilities and have stronger effects on asset prices than short-sale constraints.
Download or read book Consumption Based Asset Pricing written by John Y. Campbell and published by . This book was released on 2002 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Heterogeneity of Investors and Asset Pricing in a Risk value World written by Günter Franke and published by . This book was released on 2003 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Asset Pricing written by Patrick Konermann and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Asset Pricing with Heterogeneous Consumers and Limited Participation written by Alon Brav and published by . This book was released on 2002 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present evidence that the equity premium and the premium of value stocks over growth stocks are explained in the 1982 1996 period with a stochastic discount factor (SDF) calculated as the weighted average of individual households' marginal rate of substitution with low and economically plausible values of the relative risk aversion (RRA) coefficient. Household consumption of non-durables and services is reconstructed from the CEX database. Since the above premia are not explained with a SDF calculated as the per capita marginal rate of substitution with low value of the RRA coefficient, the evidence supports the hypothesis of incomplete consumption insurance. We also present evidence is that a SDF calculated as the per capita marginal rate of substitution is better able to explain the equity premium and does so with a lower value of the RRA coefficient, as the definition of asset holders is tightened to recognize the limited participation of households in the capital market.
