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Life-Cycle Portfolio Choice, the Wealth Distribution and Asset Prices

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Author Info

  • Felix KUBLER

    (University of Zurich (ISB) and Swiss Finance Insitute)

  • Karl SCHMEDDERS

    (University of Zurich (IOR) and Swiss Finance Insitute)

Abstract

In 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 Info

Paper provided by Swiss Finance Institute in its series Swiss Finance Institute Research Paper Series with number 10-21.

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Length: 41 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:chf:rpseri:rp1021

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Web page: http://www.SwissFinanceInstitute.ch
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Related research

Keywords: OLG economy; heterogeneous beliefs; life-cycle portfolio choice; wealth distribution; market volatility;

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Cited by:
  1. Andrew Glover & Jonathan Heathcote & Dirk Krueger & José-Víctor Ríos-Rull, 2011. "Intergenerational redistribution in the Great Recession," Working Papers 684, Federal Reserve Bank of Minneapolis.
  2. Alp Simsek, 2012. "Speculation and Risk Sharing with New Financial Assets," 2012 Meeting Papers 71, Society for Economic Dynamics.
  3. Eric Aldrich, 2012. "Trading Volume in General Equilibrium with Complete Markets," 2012 Meeting Papers 36, Society for Economic Dynamics.
  4. Dan Cao, 2011. "Collateral Shortages, Asset Price and Investment Volatility with Heterogeneous Beliefs," Working Papers gueconwpa~11-11-01, Georgetown University, Department of Economics.

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