Life-Cycle Portfolio Choice, the Wealth Distribution and Asset Prices
AbstractIn this paper we examine the volatility of asset returns in a canonical stochastic overlapping generations economy with sequentially complete markets. We show that movements in the in- tergenerational wealth distribution strongly affect asset prices since older generations have a lower propensity to save than younger generations. We investigate effects of aggregate shocks on the wealth distribution and show that they are generally small if agents have identical be- liefs. Differences in opinion, however, can lead to large movements in the wealth distribution even when aggregate shocks are absent. The interplay of belief heterogeneity and life-cycle investments leads to considerable changes in the wealth distribution which in turn result in substantial asset price volatility. In fact, the model generates realistic second moments of asset returns.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 536.
Date of creation: 2012
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Other versions of this item:
- Felix KUBLER & Karl SCHMEDDERS, 2010. "Life-Cycle Portfolio Choice, the Wealth Distribution and Asset Prices," Swiss Finance Institute Research Paper Series 10-21, Swiss Finance Institute.
- 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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- Glover, Andrew & Heathcote, Jonathan & Krueger, Dirk & Ríos-Rull, José-Víctor, 2011.
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