Financial Markets Equilibrium with Heterogeneous Agents

53 Pages Posted: 13 Mar 2010

See all articles by Jaksa Cvitanic

Jaksa Cvitanic

California Institute of Technology - Division of the Humanities and Social Sciences

Elyes Jouini

Univ. Paris Dauphine - CEREMADE

Semyon Malamud

Ecole Polytechnique Federale de Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Clotilde Napp

CNRS and Université Paris-Dauphine

Multiple version iconThere are 2 versions of this paper

Date Written: February 12, 2010

Abstract

This paper presents an equilibrium model in a pure exchange economy when investors have three possible sources of heterogeneity. Investors may differ in their beliefs, in their level of risk aversion and in their time preference rate. We study the impact of investors heterogeneity on the properties of the equilibrium. In particular, we analyze the consumption shares, the market price of risk, the risk free rate, the bond prices at different maturities, the stock price and volatility as well as the stockís cumulative returns, and optimal portfolio strategies. We relate the heterogeneous economy with the family of associated homogeneous economies with only one class of investors. We consider cross sectional as well as asymptotic properties.

Keywords: Heterogeneous beliefs, heterogeneous preferences, heterogeneous time preference rates, contracyclical market price of risk, procyclical interest rate, term structure of interest rates, preferred habitat theory, long term risk

JEL Classification: G12, E43, D53

Suggested Citation

Cvitanic, Jaksa and Jouini, Elyes and Malamud, Semyon and Napp, Clotilde, Financial Markets Equilibrium with Heterogeneous Agents (February 12, 2010). Available at SSRN: https://ssrn.com/abstract=1568701 or http://dx.doi.org/10.2139/ssrn.1568701

Jaksa Cvitanic

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
Pasadena, CA 91125
United States

HOME PAGE: http://www.hss.caltech.edu/~cvitanic/

Elyes Jouini (Contact Author)

Univ. Paris Dauphine - CEREMADE ( email )

Place du Marechal de Lattre de Tassigny
Paris Cedex 16, 75775
France
+ 33 1 44 05 46 75 (Phone)
+ 33 1 44 05 45 99 (Fax)

Semyon Malamud

Ecole Polytechnique Federale de Lausanne ( email )

Lausanne, 1015
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Clotilde Napp

CNRS and Université Paris-Dauphine ( email )

Place de Lattre de Tassigny
Paris, 75775
France

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