59 Pages Posted: 14 Dec 2014 Last revised: 27 Sep 2017
Date Written: September 13, 2017
We develop an asset pricing model with rich heterogeneity in asset demand across investors, designed to match institutional holdings. A portfolio-choice model implies a characteristics-based model of asset demand when returns have a factor structure and expected returns and factor loadings depend only on the assets' own 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 the model could be used to understand the role of institutions in asset market movements, volatility, and predictability.
Keywords: Asset pricing model, Institutional investors, Liquidity, Portfolio choice
JEL Classification: G12, G23
Suggested Citation: Suggested Citation
Koijen, Ralph S. J. and Yogo, Motohiro, An Equilibrium Model of Institutional Demand and Asset Prices (September 13, 2017). Available at SSRN: https://ssrn.com/abstract=2537559 or http://dx.doi.org/10.2139/ssrn.2537559
By Andrew Ang