Financial Markets Equilibrium with Heterogeneous Agents

56 Pages Posted: 10 Dec 2009

See all articles by Jaksa Cvitanic

Jaksa Cvitanic

California Institute of Technology - Division of the Humanities and Social Sciences

Elyes Jouini

Univ. Paris Dauphine - CEREMADE

Semyon Malamud

Ecole Polytechnique Federale de Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Clotilde Napp

CNRS and Université Paris-Dauphine ; IZA

Multiple version iconThere are 2 versions of this paper

Date Written: December 3, 2009

Abstract

This paper presents an equilibrium model in a pure exchange economy when investors have three possible sources of heterogeneity. Investors may differ in their beliefs, in their level of risk aversion and in their time preference rate. We study the impact of investors heterogeneity on the properties of the equilibrium. In particular, we analyze the consumption shares, the market price of risk, the risk free rate, the bond prices at di erent maturities, the stock price and volatility as well as the stock's cumulative returns, and optimal portfolio strategies. We relate the heterogeneous economy with the family of associated homogeneous economies with only one class of investors. We consider cross sectional as well as asymptotic properties.

Keywords: equilibrium, heterogeneous agents, volatility, optimal portfolios, survival, yield curve, long yield

JEL Classification: D53, G11, G12

Suggested Citation

Cvitanic, Jaksa and Jouini, Elyes and Malamud, Semyon and Napp, Clotilde, Financial Markets Equilibrium with Heterogeneous Agents (December 3, 2009). Swiss Finance Institute Research Paper No. 09-45, Available at SSRN: https://ssrn.com/abstract=1520412 or http://dx.doi.org/10.2139/ssrn.1520412

Jaksa Cvitanic

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
Pasadena, CA 91125
United States

HOME PAGE: http://www.hss.caltech.edu/~cvitanic/

Elyes Jouini

Univ. Paris Dauphine - CEREMADE ( email )

Place du Marechal de Lattre de Tassigny
Paris Cedex 16, 75775
France
+ 33 1 44 05 46 75 (Phone)
+ 33 1 44 05 45 99 (Fax)

Semyon Malamud (Contact Author)

Ecole Polytechnique Federale de Lausanne ( email )

Lausanne, 1015
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Clotilde Napp

CNRS and Université Paris-Dauphine ( email )

Place de Lattre de Tassigny
Paris, 75775
France

IZA ( email )

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