An Equilibrium Model of Institutional Demand and Asset Prices

53 Pages Posted: 14 Dec 2014 Last revised: 16 Oct 2016

Ralph S. J. Koijen

New York University (NYU) - Department of Finance; Centre for Economic Policy Research (CEPR)

Motohiro Yogo

Princeton University - Department of Economics; National Bureau of Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: October 14, 2016

Abstract

We develop an asset pricing model with rich heterogeneity in asset demand across investors, designed to match institutional holdings. The equilibrium price vector is uniquely determined by market clearing across institutional investors and households. We relate the model to Euler equations, mean-variance portfolio choice, factor models, and cross-sectional regressions on characteristics. We propose an instrumental variables estimator for the asset demand system to address the endogeneity of institutional demand and asset prices. Using U.S. stock market data, we illustrate how our approach could be used to understand the role of institutions in asset market movements, volatility, and predictability.

Keywords: Asset pricing model, Differentiated product demand systems, Institutional investors, Liquidity, Portfolio choice

JEL Classification: G12, G23

Suggested Citation

Koijen, Ralph S. J. and Yogo, Motohiro, An Equilibrium Model of Institutional Demand and Asset Prices (October 14, 2016). Available at SSRN: https://ssrn.com/abstract=2537559 or http://dx.doi.org/10.2139/ssrn.2537559

Ralph S. J. Koijen

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

HOME PAGE: http://www.koijen.net

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Motohiro Yogo (Contact Author)

Princeton University - Department of Economics ( email )

Julis Romo Rabinowitz Building
Princeton, NJ 08544
United States

HOME PAGE: http://sites.google.com/site/motohiroyogo/

National Bureau of Economic Research

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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