An Equilibrium Model with Restricted Stock Market Participation
Review of Financial Studies Volume 11, Issue 2
Posted: 18 Apr 1998
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: Suggested Citation