Abstract

https://ssrn.com/abstract=2537559
 


 



An Equilibrium Model of Institutional Demand and Asset Prices


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

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.

Number of Pages in PDF File: 53

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

JEL Classification: G12, G23


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Date posted: December 14, 2014 ; Last revised: October 16, 2016

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

Contact Information

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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