Life-Cycle Portfolio Choice, the Wealth Distribution and Asset Prices
AbstractIn this paper we consider a canonical stochastic overlapping generations economy with sequentially complete markets. We examine how aggregate and individual shocks translate to changes in the distribution of wealth and how these movements in the wealth distribution affect asset prices and the interest rate. We show that effects are generally small if agents have identical beliefs but that differences in opinion lead to large movements in the wealth distribution. The interplay of belief heterogeneity and life-cycle savings motives creates very large movements of asset prices and can poten- tially generate realistic moments of asset returns.
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Bibliographic InfoPaper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 10-21.
Length: 41 pages
Date of creation: May 2010
Date of revision:
OLG economy; heterogeneous beliefs; life-cycle portfolio choice; wealth distribution; market volatility;
Other versions of this item:
- Karl Schmedders & Felix Kubler, 2012. "Life-Cycle Portfolio Choice, the Wealth Distribution and Asset Prices," 2012 Meeting Papers 536, Society for Economic Dynamics.
- D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
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