The Term Structure of Interest Rates in a Pure Exchange Economy with Heterogeneous Investors

42 Pages Posted: 11 Jun 2000 Last revised: 1 Sep 2010

See all articles by Jiang Wang

Jiang Wang

Massachusetts Institute of Technology (MIT) - Sloan School of Management; China Academy of Financial Research (CAFR); National Bureau of Economic Research (NBER)

Date Written: July 1995

Abstract

This paper presents an equilibrium model of the term structure of interest rates when investors have heterogeneous preferences. The basic model considers a pure exchange economy of two classes of investors with different (but constant) relative risk-aversion and gives closed-form solutions to bond prices. We use the model to examine the effect of preference heterogeneity on the behavior of bond yields. Extensions to cases of more than two investors are also considered.

Suggested Citation

Wang, Jiang, The Term Structure of Interest Rates in a Pure Exchange Economy with Heterogeneous Investors (July 1995). NBER Working Paper No. w5172. Available at SSRN: https://ssrn.com/abstract=225235

Jiang Wang (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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China Academy of Financial Research (CAFR)

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National Bureau of Economic Research (NBER)

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