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 Risk Aversion and Optimal Portfolio Policies in Partial and General Equilibrium Economies written by Leonid Kogan and published by . This book was released on 2001 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: In this article, we show how to analyze analytically the equilibrium policies and prices in an economy with a stochastic investment opportunity set and incomplete financial markets, when agents have power utility over both intermediate consumption and terminal wealth, and face portfolio constraints. The exact local comparative statics and approximate but analytical expression for the portfolio policy and asset prices are obtained by developing a method based on perturbation analysis to expand around the solution for an investor with log utility. We then use this method to study a general equilibrium exchange economy with multiple agents who differ in their degree of risk aversion and face borrowing constraints. We characterize explicitly the consumption and portfolio policies and also the properties of asset returns. We find that the volatility of stock returns increases with the cross-sectional dispersion of risk aversion, with the cross-sectional dispersion in portfolio holdings, and with the relaxation of the constraint on borrowing. Moreover, tightening the borrowing constraint lowers the risk-free interest rate and raises the equity premium in equilibrium.
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 Mean Reversion in Equilibrium Asset Prices written by Stephen Giovanni Cecchetti and published by . This book was released on 1988 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent empirical studies have found that stock returns contain substantial negative serial correlation at long horizons. We examine this finding with a series of Monte Carlo simulations in order to demonstrate that it is consistent with an equilibrium model of asset pricing. When investors display only a moderate degree of risk aversion, commonly used measures of mean reversion in stock prices calculated from actual returns data nearly always lie within a 60 percent confidence interval of the median of the Monte Carlo distributions. From this evidence, we conclude that the degree of serial correlation in the data could plausibly have been generated by our model.
Download or read book Divergence of Opinion in Complete Markets written by Hal R. Varian and published by . This book was released on 1984 with total page 5 pages. Available in PDF, EPUB and Kindle. Book excerpt: We consider an Arrow-Debreu model with different subjective probabilities. In general asset prices will depend only on aggregate consumption and the distribution of subjective probabilities in each state of nature. If all agents have identical preferences then an asset with 'more dispersed' subjective probabilities will have a lower price than an asset with less dispersed subjective probabilities if risk aversion does not decline too rapidly. It seems likely that this condition is met in practice so that increased dispersion of beliefs will generally be associated with reduced asset prices in a given Arrow-Debreu equilibrium.
Download or read book Dynamic Choice and Asset Markets written by Sumru Altug and published by . This book was released on 1994 with total page 396 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides thorough models that analyze pricing and costs of all commodities. It considers the consumers' risks and opportunities. The authors begin with the theoretical background and develop the topics by integrating real-world, testable implications. Dynamic Choice and Asset Markets will be of value to students of finance and macroeconomics as well as researchers and economists using asset pricing models.
Download or read book Changes in Risk and Asset Prices written by Christian Gollier and published by . This book was released on 2004 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine asset prices in a representative-agent model of general equilibrium. Assuming only that individuals are risk averse, we determine conditions on the changes in asset risk that are both necessary and sufficient for the asset price to fall. We show that these conditions neither imply, nor are implied by the conditions for second-degree stochastic dominance. For example, if the payoff on an asset becomes riskier in the sense of second-degree stochastic dominance, the equilibrium price of the asset need not necessarily fall. We further demonstrate how our results can be imbedded into a market that is incomplete in the sense of containing an uninsurable background risk, such as a risk on labor income. We extend our model to show how a miscalibration of the asset risk can lead to a partial explanation of high equity premia (i.e., the quot;equity premium puzzlequot;).
Download or read book Three Essays on Asset Pricing Model with Heterogenous Agents written by Tae-Jin Kang and published by . This book was released on 1991 with total page 174 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Asset Pricing in a General Equilibrium Production Economy with Chew dekel Risk Preferences written by Claudio Campanale and published by . This book was released on 2008 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Comparative Statics of General Equilibrium Asset pricing written by Theodoros M. Diasakos and published by . This book was released on 2007 with total page 122 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Asset Prices and Default Free Term Structure in an Equilibrium Model of Default written by Ganlin Chang and published by . This book was released on 2011 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present an equilibrium model of asset pricing in which asset prices, default-free term structure and default premia are determined simultane-ously. The consumer chooses his optimal consumption and investment decisions simultaneously with optimal voluntary default. The endogenously determined consumer's relative risk aversion in wealth increases with decreases in wealth due to the increased possibility of default in the economy at low wealth levels. This produces a countercyclical and time-varying equity premium. Our model exhibits a flight to quality phenomenon in which as the wealth drops, the default premium increases, the default-free interest rates go down and the default-free term structure becomes steeper. The expected equity returns are predictable by the default premium in the economy. These results are consistent with some of the stylized facts found in the data on asset prices and default premium. The modeling strategy of our paper offers a new way recast the default risk literature in an equilibrium setting and integrates it with the asset pricing literature.
Download or read book The Determinants of Asset Price Volatility written by Peter J. Phillips and published by . This book was released on 2003 with total page 1016 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation critically analyses the relationship among risk-aversion, the variance exhibited by the risk premium and time-varying variance (volatility) in asset prices. The results generated by this investigation are both theoretical and empirical in nature. The theoretical contribution made by this dissertation to the literature of financial economics consists of a more general explanation (than the existing one) about how risk aversion on the part of economic agents may cause asset prices to exhibit greater time-varying variance than when economic agents are less risk averse or risk neutral. The empirical contribution made by this dissertation to the literature consists of a detailed experimental analysis of the relationship among risk-aversion, the variance exhibited by the risk premium and time-varying variance (volatility) in asset prices.
Download or read book Dynamic General Equilibrium and T period Fund Separation written by and published by . This book was released on 2005 with total page 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 Asset Prices in an Exchange Economy with Money and Trade written by Raphael A. Espinoza and published by . This book was released on 2007 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show, in an exchange economy with liquidity constraints, that state prices in a complete markets general equilibrium are a function of the supply of liquidity by the Central Bank. Our model is derived along the lines of Dubey and Geanakoplos (1992). Two agents trade goods and nominal assets (Arrow-Debreu (AD) securities) to smooth consumption across periods and future states, in the presence of cash-in-advance financing costs. We show, with Von Neumann-Morgenstern utility functions and relative risk-aversion greater than 1, that the price of AD securities, are inversely related to liquidity. A closed-from solution is obtained for a CRRA utility function, even when including aggregate uncertainty and different subjective probabilities for the two agents. The upshot of our argument is that agents' expectations computed using risk-neutral probabilities give more weight in the states with higher interest rates. This result cannot be found in a Lucas-type representative agent general equilibrium model where there is neither trade nor money. Hence, an upward yield curve can be supported in equilibrium, even though short-term interest rates are fairly stable, and even in the absence of aggregate uncertainty. The risk-premium in the term structure is therefore a pure liquidity risk premium.
Download or read book Financial Markets and the Real Economy written by John H. Cochrane and published by Now Publishers Inc. This book was released on 2005 with total page 117 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.
Download or read book Asset Prices with Heterogeneity in Preferences and Beliefs written by Harjoat Singh Bhamra and published by . This book was released on 2015 with total page 71 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we study asset prices in a dynamic, continuous-time, general-equilibrium endowment economy where agents have ldquo;catching up with the Jonesesrdquo; utility functions and differ with respect to their beliefs (because of differences in priors) and their preference parameters for time discount, risk aversion, and sensitivity to habit. A key contribution of our paper is to demonstrate how one can obtain a closed-form solution to the consumption-sharing rule for agents who have both heterogeneous priors and heterogeneous preferences without restricting the risk aversion of the two agents to special values. We solve in closed form also for the the state-price density, the riskless interest rate and market price of risk; the stock price, equity risk premium, and volatility of stock returns; the term structure of interest rates; and the conditions necessary to obtain a stationary equilibrium in which both agents survive in the long run. The methodology we develop is sufficiently general that, as long as markets are complete, it can be used to obtain the sharing rule and state prices for models set in discrete or continuous time and for arbitrary endowment and belief updating processes.
