Asset Trading Volume with Dynamically Complete Markets and Heterogeneous Agents
AbstractThe trading volume of long-lived securities with recursive payoffs, such as equity, is generically zero in infinite-horizon recursive pure exchange Lucas asset models with heterogeneous agents. In equilibrium, there is no portfolio rebalancing of such assets. More generally, the end-of-period portfolio of long- and short-lived securities is constant over time and states in the generic economy. We also present a nonrobust formulation of dynamically complete markets which does have nonzero trading volume in equilibrium. The comparisons show that any theory of asset trading volume will be very sensitive to small changes in model specifications.
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Bibliographic InfoPaper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1294.
Date of creation: May 2000
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Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014
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Other versions of this item:
- Kenneth L. Judd & Felix Kubler & Karl Schmedders, 2003. "Asset Trading Volume with Dynamically Complete Markets and Heterogeneous Agents," Journal of Finance, American Finance Association, vol. 58(5), pages 2203-2218, October.
- NEP-ALL-2000-10-05 (All new papers)
- NEP-DGE-2000-10-05 (Dynamic General Equilibrium)
- NEP-FMK-2000-10-05 (Financial Markets)
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