Dynamics of Asset Demands with Confidence Heterogeneity

53 Pages Posted: 22 Sep 2021

See all articles by Adrian Buss

Adrian Buss

Frankfurt School of Finance & Management; Centre for Economic Policy Research (CEPR)

Raman Uppal

EDHEC Business School; Centre for Economic Policy Research (CEPR)

Grigory Vilkov

Frankfurt School of Finance & Management

Multiple version iconThere are 3 versions of this paper

Date Written: August 2021

Abstract

To understand the dynamics of investor asset demands, we develop a multiperiod general-equilibrium model driven by a single latent variable, differences in beliefs, resulting from heterogeneity in investors' confidence regarding the return dynamics of assets. Consistent with the data, investors' asset holdings are concentrated and display large and persistent heterogeneity in asset demands across investors. Moreover, demand curves are steeper than with homogeneous beliefs. The time-series and cross-sectional variation in assets' realized and expected returns, as well as their volatilities, are driven by the mean and dispersion of latent demand.

Keywords: asset-demand elasticity, Institutional asset demand, investors' expectations, predictability, trend chasing

JEL Classification: D53, G11, G12

Suggested Citation

Buss, Adrian and Uppal, Raman and Vilkov, Grigory, Dynamics of Asset Demands with Confidence Heterogeneity (August 2021). CEPR Discussion Paper No. DP16441, Available at SSRN: https://ssrn.com/abstract=3928738

Adrian Buss (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt, 60322
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Raman Uppal

EDHEC Business School ( email )

58 rue du Port
Lille, 59046
France

Centre for Economic Policy Research (CEPR)

90-98 Goswell Road
London, EC1V 7RR
United Kingdom

Grigory Vilkov

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

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

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