Market selection with learning and catching up with the Joneses
AbstractWe study the market selection hypothesis in complete financial markets, populated by heterogeneous agents. We allow for a rich structure of heterogeneity: individuals may differ in their beliefs concerning the economy, information and learning mechanism, risk aversion, impatience and 'catching up with Joneses' preferences. We develop new techniques for studying the long-run behavior of such economies, based on the Strassen's functional law of iterated logarithm. In particular, we explicitly determine an agent's survival index and show how the latter depends on the agent's characteristics. We use these results to study the long-run behavior of the equilibrium interest rate and the market price of risk.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1106.3025.
Date of creation: Jun 2011
Date of revision: Jan 2012
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-25 (All new papers)
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