Heterogenous Preferences and Equilibrium Trading Volume
38 Pages Posted: 19 Apr 2005 Last revised: 18 Feb 2008
Date Written: January 1, 2006
Abstract
The classic Lucas asset pricing model with complete markets stresses aggregate risk and, hence, fails to investigate the impact of agents heterogeneity on the dynamics of the equilibrium quantities and measures of trading volume. In this paper, we investigate under what conditions non-informational heterogeneity, i.e., differences in preferences and endowments, leads to non trivial trading volume in equilibrium. Our main result comes in form of a non-informational no trade theorem which provides necessary and sufficient conditions for zero trading volume in a dynamically efficient, continuous time Lucas market model with multiple goods and securities.
Keywords: General equilibrium, trading volume, heterogenous agents, multiple goods, incomplete markets, no-trade theorem
JEL Classification: D51, D52, G11, G12
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
The Term Structure of Interest Rates in a Pure Exchange Economy with Heterogeneous Investors
By Jiang Wang
-
Heterogeneous Expectations and Bond Markets
By Hongjun Yan and Wei Xiong
-
Heterogeneous Expectations and Bond Markets
By Hongjun Yan and Wei Xiong
-
The Price Impact and Survival of Irrational Traders
By Leonid Kogan, Stephen A. Ross, ...
-
The Price Impact and Survival of Irrational Traders
By Leonid Kogan, Stephen A. Ross, ...
-
Consensus Consumer and Intertemporal Asset Pricing with Heterogeneous Beliefs
By Elyes Jouini and Clotilde Napp
-
Equilibrium Portfolio Strategies in the Presence of Sentiment Risk and Excess Volatility
By Bernard Dumas, Alexander Kurshev, ...
-
Equilibrium Portfolio Strategies in the Presence of Sentiment Risk and Excess Volatility
By Bernard Dumas, Alexander Kurshev, ...