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Equilibrium Portfolios in the Neoclassical Growth Model

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  • Emilio Espino

    (Department of Economics, Universidad de San Andres)

Abstract

This paper studies equilibrium portfolios in the standard neoclassical growth model under uncertainty with heterogeneous agents and dinamically 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 dinamically 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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File URL: ftp://webacademicos.udesa.edu.ar/pub/econ/doc87.pdf
File Function: First version, 2005
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Bibliographic Info

Paper provided by Universidad de San Andres, Departamento de Economia in its series Working Papers with number 87.

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Length: 31 pages
Date of creation: Dec 2005
Date of revision: Dec 2005
Handle: RePEc:sad:wpaper:87

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Keywords: neoclassical growth model; equilibrium portfolios; complete markets;

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References

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  1. Le Van, Cuong & Morhaim, Lisa, 2002. "Optimal Growth Models with Bounded or Unbounded Returns: A Unifying Approach," Journal of Economic Theory, Elsevier, Elsevier, vol. 105(1), pages 158-187, July.
  2. Brock, William A., 1980. "Asset Prices in a Production Economy," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 275, California Institute of Technology, Division of the Humanities and Social Sciences.
  3. Michele Boldrin & Lawrence J. Christiano & Jonas D. M. Fisher, 2000. "Habit persistence, asset returns and the business cycle," Staff Report, Federal Reserve Bank of Minneapolis 280, Federal Reserve Bank of Minneapolis.
  4. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  5. Jermann, Urban J., 2010. "The equity premium implied by production," Journal of Financial Economics, Elsevier, Elsevier, vol. 98(2), pages 279-296, November.
  6. Jermann, Urban J., 1998. "Asset pricing in production economies," Journal of Monetary Economics, Elsevier, Elsevier, vol. 41(2), pages 257-275, April.
  7. Peter Bossaerts & William R. Zame, 2005. "Asset Trading Volume in Infinite-Horizon Economies with Dynamically Complete Markets and Heterogeneous Agents: Comment," UCLA Economics Working Papers, UCLA Department of Economics 841, UCLA Department of Economics.
  8. Thomas Hintermaier & Emilio Espino, 2005. "Asset Trading Volume in a Production Economy," 2005 Meeting Papers, Society for Economic Dynamics 363, Society for Economic Dynamics.
  9. Francesc Obiols-Homs & Carlos Urrutia, 2004. "Transitional Dynamics and the Distribution of Assets," Macroeconomics, EconWPA 0407020, EconWPA.
  10. 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, Elsevier, vol. 18(3-4), pages 807-813.
  11. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, Econometric Society, vol. 46(6), pages 1429-45, November.
  12. Alvarez, Fernando & Stokey, Nancy L., 1998. "Dynamic Programming with Homogeneous Functions," Journal of Economic Theory, Elsevier, Elsevier, vol. 82(1), pages 167-189, September.
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Cited by:
  1. David N. DeJong & Emilio Espino, 2011. "The cyclical behavior of equity turnover," Quantitative Economics, Econometric Society, Econometric Society, vol. 2(1), pages 99-133, 03.
  2. Thomas Hintermaier & Emilio Espino, 2005. "Asset Trading Volume in a Production Economy," 2005 Meeting Papers, Society for Economic Dynamics 363, Society for Economic Dynamics.

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