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Equilibrium Portfolios in the Neoclassical Growth Model

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  • Emilio Espino

Abstract

This paper studies equilibrium portfolios in the standard neoclassical growth model under uncertainty with heterogeneous agents and dynamically complete markets. Preferences are purposely restricted to be quasi-homothetic. The main source of heterogeneity across agents is due to different endowments of shares of the representative firm at date 0. Fixing portfolios is the optimal strategy in stationary endowment economies with dynamically complete markets. Whenever an environment displays changing degrees of heterogeneity across agents, the trading strategy of fixed portfolios cannot be optimal in equilibrium. Very importantly, our framework can generate changing heterogeneity if and only if either minimum consumption requirements are not zero or labor income is not zero and the value of human and non-human wealth are linearly independent

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 92.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:92

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Keywords: Neoclassical Growth Model; Equilibrium Portfolios; Complete Markets;

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References

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  1. Bossaerts, Peter & Zame, William R., 2006. "Asset trading volume in infinite-horizon economies with dynamically complete markets and heterogeneous agents: Comment," Finance Research Letters, Elsevier, vol. 3(2), pages 96-101, June.
  2. Michele Boldrin & Lawrence J. Christiano & Jonas D.M. Fisher, 1999. "Habit persistence, asset returns and the business cycles," Working Paper Series WP-99-14, Federal Reserve Bank of Chicago.
  3. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
  4. Benhabib, Jess & Rustichini, Aldo, 1994. "A note on a new class of solutions to dynamic programming problems arising in economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 18(3-4), pages 807-813.
  5. Jermann, Urban J., 2010. "The equity premium implied by production," Journal of Financial Economics, Elsevier, vol. 98(2), pages 279-296, November.
  6. LE VAN, Cuong & MORHAIM, Lisa, 2001. "Optimal growth models with bounded or unbounded returns: a unifying approach," CORE Discussion Papers 2001034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Thomas Hintermaier & Emilio Espino, 2005. "Asset Trading Volume in a Production Economy," 2005 Meeting Papers 363, Society for Economic Dynamics.
  8. Francesc Obiols-Homs & Carlos Urrutia, 2005. "Transitional dynamics and the distribution of assets," Economic Theory, Springer, vol. 25(2), pages 381-400, 02.
  9. William A. Brock, 1982. "Asset Prices in a Production Economy," NBER Chapters, in: The Economics of Information and Uncertainty, pages 1-46 National Bureau of Economic Research, Inc.
  10. Jermann, Urban J., 1998. "Asset pricing in production economies," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 257-275, April.
  11. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
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Cited by:
  1. David N. DeJong & Emilio Espino, 2007. "The Cyclical Behavior of Equity Turnover," Working Papers 294, University of Pittsburgh, Department of Economics, revised Oct 2007.
  2. Thomas Hintermaier & Emilio Espino, 2005. "Asset Trading Volume in a Production Economy," 2005 Meeting Papers 363, Society for Economic Dynamics.

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