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Financial Markets Equilibrium with Heterogeneous Agents

Author

Listed:
  • Jaksa CVITANIC

    (CALTECH)

  • Elyès JOUINI

    (Université Paris Dauphine)

  • Semyon MALAMUD

    (EPF Lausanne and Swiss Finance Institute)

  • Clotilde NAPP

    (Université Paris Dauphine)

Abstract

This paper presents an equilibrium model in a pure exchange econ- omy when investors have three possible sources of heterogeneity. In- vestors may differ in their beliefs, in their level of risk aversion and in their time preference rate. We study the impact of investors hetero- geneity on the properties of the equilibrium. In particular, we analyze the consumption shares, the market price of risk, the risk free rate, the bond prices at different maturities, the stock price and volatil- ity as well as the stock's cumulative returns, and optimal portfolio strategies. We relate the heterogeneous economy with the family of associated homogeneous economies with only one class of investors. We consider cross sectional as well as asymptotic properties.

Suggested Citation

  • Jaksa CVITANIC & Elyès JOUINI & Semyon MALAMUD & Clotilde NAPP, 2009. "Financial Markets Equilibrium with Heterogeneous Agents," Swiss Finance Institute Research Paper Series 09-45, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp0945
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    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • 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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