An Equilibrium Model with Restricted Stock Market Participation

Review of Financial Studies Volume 11, Issue 2

Posted: 18 Apr 1998

See all articles by Suleyman Basak

Suleyman Basak

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

Domenico Cuoco

University of Pennsylvania - Finance Department

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Abstract

This paper solves the equilibrium problem in a pure-exchange, continuous-time economy in which some agents face information costs or other types of frictions effectively preventing them from investing in the stock market. Under the assumption that the restricted agents have logarithmic utilities, a complete characterization of equilibrium prices and consumption/investment policies is provided. A simple calibration shows that the model can help resolve some of the empirical asset pricing puzzles.

JEL Classification: G12, G14

Suggested Citation

Basak, Suleyman and Cuoco, Domenico, An Equilibrium Model with Restricted Stock Market Participation. Review of Financial Studies Volume 11, Issue 2. Available at SSRN: https://ssrn.com/abstract=77328

Suleyman Basak

London Business School ( email )

Sussex Place
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London, London NW1 4SA
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44 (0)20 7000 8256 (Phone)
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HOME PAGE: http://www.suleymanbasak.com

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Domenico Cuoco (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

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