Download or read book Overreaction of Asset Prices in General Equilibrium written by S. Rao Aiyagari and published by . This book was released on 1998 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: We attempt to explain the overreaction of asset prices to movements in short-term interest rates, dividends, and asset supplies. The key element of our explanation is a margin constraint that traders face which limits their leverage to a fraction of the value of their assets. Traders may lever themselves further, either directly by borrowing short term or indirectly by engaging in futures and options trading, so that the scenario is relevant to contemporary financial markets. When some shock pushes asset prices to a low enough level at which the margin constraint binds, traders are forced to liquidate assets. This drives asset prices below what they would be with frictionless markets. Also, a shock which simply increases the likelihood that the margin constraint will bind can have a very similar effect on asset prices. We construct a general equilibrium model with margin constrained traders and derive some qualitative properties of asset prices. We present an analytical solution for a deterministic version of the model and a simple numerical computation of the stochastic version.
Download or read book Overreaction of Asset Prices in General Equilibrium written by S. Rao Aiyagari and published by . This book was released on 2000 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: We attempt to explain the overreaction of asset prices to movements in short-term interest rates, dividends, and asset supplies. The key element of our explanation is a margin constraint that traders face which limits their leverage to a fraction of the value of their assets. Traders may lever themselves further, either directly by borrowing short term or indirectly by engaging in futures and options trading, so that the scenario is relevant to contemporary financial markets. When some shock pushes asset prices to a low enough level at which the margin constraint binds, traders are forced to liquidate assets. This drives asset prices below what they would be with frictionless markets. Also, a shock which simply increases the likelihood that the margin constraint will bind can have a very similar effect on asset prices. We construct a general equilibrium model with margin constrained traders and derive some qualitative properties of asset prices. We present an analytical solution for a deterministic version of the model and a simple numerical computation of the stochastic version.
Download or read book The Re sale Premium for Assets in General Equilibrium written by Stephen E. Morris and published by . This book was released on 1992 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Dispersion of Asset Prices in a General Equilibrium Model with Risk aversion written by Charles John LaCivita and published by . This book was released on 1981 with total page 124 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book A general equilibrium theory of asset prices with applications to the theory of the term structure of interest rates written by Gordon Sam Abram Roberts and published by . This book was released on 1973 with total page 302 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Inter temporal Asset Pricing in General Equilibrium with Arbitrage Opportunities written by Sergei Issaenko and published by . This book was released on 2003 with total page 79 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Efficient myopic Asset Pricing in General Equilibrium written by Willem H. Buiter and published by . This book was released on 1987 with total page 13 pages. Available in PDF, EPUB and Kindle. Book excerpt: Excess volatility tests for financial market efficiency maintain the hypothesis of risk-neutrality. This permits the specification of the benchmark efficient market price as the present discounted value of expected future dividends. By departing from the risk-neutrality assumption in a stripped-down version of Lucas's general equilibrium asset pricing model, I show that asset prices determined in a competitive asset market and efficient by construction can nevertheless violate the variance bounds established under the assumption of risk neutrality. This can occur even without the problems of non-stationarity (including bubbles) and finite samples. Standard excess volatility tests are joint tests of market efficiency and risk neutrality. Failure of an asset price to pass the test may be due to the absence of risk neutrality rather than to market inefficiency
Download or read book Asset Prices in General Equilibrium with Recursive Utility and Illiquidity Induced by Transactions Costs written by Adrian Buss and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we study the effect of proportional transaction costs on consumption-portfolio decisions and asset prices in a dynamic general equilibrium economy with a financial market that has a single-period bond and two risky stocks, one of which incurs the transaction cost. Our model has multiple investors with stochastic labor income, heterogeneous beliefs, and heterogeneous Epstein-Zin-Weil utility functions. The transaction cost gives rise to endogenous variations in liquidity. We show how equilibrium in this incomplete-markets economy can be characterized and solved for in a recursive fashion. We have three main findings. One, costs for trading a stock lead to a substantial reduction in the trading volume of that stock, but have only a small effect on the trading volume of the other stock and the bond. Two, even in the presence of stochastic labor income and heterogeneous beliefs, transaction costs have only a small effect on the consumption decisions of investors, and hence, on equity risk premia and the liquidity premium. Three, the effects of transaction costs on quantities such as the liquidity premium are overestimated in partial equilibrium relative to general equilibrium.
Download or read book Equilibrium Asset Prices and Investor Behavior in the Presence of Money Illusion written by Suleyman Basak and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article analyzes the implications of money illusion for investor behavior and asset prices in a securities market economy with inflationary fluctuations. We provide a belief-based formulation of money illusion which accounts for the systematic mistakes in evaluating real and nominal quantities. The impact of money illusion on security prices and their dynamics is demonstrated to be considerable even though its welfare cost on investors is small in typical environments. A money-illusioned investor's real consumption is shown to generally depend on the price level, and specifically to decrease in the price level. A general-equilibrium analysis in the presence of money illusion generates implications that are consistent with several empirical regularities. In particular, the real bond yields and dividend price ratios are positively related to expected inflation, the real short rate is negatively correlated with realized inflation, and money illusion may induce predictability and excess volatility in stock returns. The basic analysis is generalized to incorporate heterogeneous investors with differing degrees of illusion.
Download or read book New Shocks and Asset Price Volatility in General Equilibrium written by Alessandro Rebucci and published by . This book was released on 2011-05-01 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study equity price volatility in general equilibrium with news shocks about future productivity and monetary policy. As West (1988) shows, in a partial equilibrium present discounted value model, news about the future cash flow reduces asset price volatility. We show that introducing news shocks in a canonical dynamic stochastic general equilibrium model may not reduce asset price volatility under plausible parameter assumptions. This is because, in general equilibrium, the asset cash flow itself may be affected by the introduction of news shocks. In addition, we show that neglecting to account for policy news shocks (e.g., policy announcements) can potentially bias empirical estimates of the impact of monetary policy shocks on asset prices.
Download or read book General Equilibrium Asset Pricing Under Regime Switching written by Robert J. Elliott and published by . This book was released on 2018 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we have developed a continuous time general equilibrium model in an economy which has two states, a 'good' state and a 'bad' state. There are two types of shocks in the economy: small shocks and large shocks. The small shocks which only affect the individual price movements are modeled by Brownian motions. The large shocks, the states of the economy, are modeled by a continuous time Markov Chain. There are one riskless assets, n basic risky assets and contingent claims written on the risky assets in the market. The states of the economy affect the expected returns and the variances of the assets. We assume in different states, the means and variances of the instantaneous returns are different. We then investigate the asset pricing problem in general equilibrium with a representative agent who maximizes a cost function. Based on the assumption of a CRRA utility function, we have derived a partial differential equation satisfied by the representative agent's cost function. A form of the solution of the partial differential equation has been given in general equilibrium with intermediate consumption. In the case when the representative agent doesn't have intermediate consumption, we have found an explicit solution of the cost function. A closed-form expression for the riskless interest rate has been derived. We have also provided a partial differential equation satisfied by any contingent claim written on basic risky asset. The stochastic discount factor has been defined and computed in our framework. Based on the stochastic discount factor, we have provided an explanation for the equity premium puzzle.
Download or read book Equilibrium Asset Prices and Savings of Heterogeneous Agents in the Presence of Incomplete Markets and Portfolio Constraints written by Albert Marcet and published by . This book was released on 1998 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Essays in General Equilibrium Asset Pricing written by José Emilio Osambela Zavala and published by . This book was released on 2009 with total page 156 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Differences of Opinion and the Price Volume Relation written by Costas Xiouros and published by . This book was released on 2010 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper solves a dynamic general equilibrium asset pricing model of disagreement that draws a direct link between asset prices and the financial volume of trade. The model exhibits two risk averse agents that hold heterogeneous beliefs about the conditional mean of the aggregate consumption growth. The differences in opinions is supported by the fact that agents interpret public information differently. The connecting link between prices and volume is an exogenously time varying disagreement intensity that determines the magnitude of disagreement about new information. The model is able to explain a number of seemingly unrelated asset pricing facts namely the positive correlation between price changes and volume, the contemporaneous relation between volume and return volatility, the excess volatility, the volatility persistence and the negative correlation between price levels and volatility.
Download or read book Hans und Wolfgang von Weber Nachlass Tagebuch 1822 1828 Verfasser unbekannt BSB Ana 590 Tagebuch 1822 1828 written by and published by . This book was released on 1822 with total page 1475 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Asset Prices in an Economy with Latent Technological Shocks Econometric Implications of a Discrete Time General Equilibrium Model written by Ghysels, Eric and published by Montréal : Dép. de science économique, Université de Montréal. This book was released on 1986 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Parameter Learning in General Equilibrium written by Pierre Collin-Dufresne and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Parameter learning strongly amplifies the impact of macro shocks on marginal utility when the representative agent has a preference for early resolution of uncertainty. This occurs as rational belief updating generates subjective long-run consumption risks. We consider general equilibrium models with unknown parameters governing either long-run economic growth, the variance of shocks, rare events, or model selection. Overall, parameter learning generates long-lasting, quantitatively significant additional macro risks that help explain standard asset pricing puzzles.
