Download this Paper Open PDF in Browser

An Equilibrium Model of Institutional Demand and Asset Prices

59 Pages Posted: 14 Dec 2014 Last revised: 27 Sep 2017

Ralph S. J. Koijen

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

Motohiro Yogo

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

Multiple version iconThere are 2 versions of this paper

Date Written: September 13, 2017

Abstract

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

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

Ralph Koijen

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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

Paper statistics

Downloads
2,088
Rank
5,361
Abstract Views
6,456