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A Demand System Approach to Asset Pricing

Author

Listed:
  • Yogo, Motohiro

    (Federal Reserve Bank of Minneapolis)

  • Koijen, Ralph S.J.

    (London Business School)

Abstract

This Staff Report was previously titled "An Equilibrium Model of Institutional Demand and Asset Prices." {{p}} We develop an asset pricing model with rich heterogeneity in asset demand across investors, designed to match institutional holdings data. The equilibrium price vector is uniquely determined by market clearing, which equates the supply of each asset to aggregate demand. We estimate the model on U.S. stock market data by instrumental variables, under an identifying assumption that allows for price impact. The model sheds light on the role of institutions in stock market liquidity, volatility, and predictability. We also relate the model to consumption-based asset pricing and Fama-MacBeth regressions.

Suggested Citation

  • Yogo, Motohiro & Koijen, Ralph S.J., 2015. "A Demand System Approach to Asset Pricing," Staff Report 510, Federal Reserve Bank of Minneapolis, revised 10 Aug 2018.
  • Handle: RePEc:fip:fedmsr:510
    as

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    References listed on IDEAS

    as
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    14. Harris, Lawrence E & Gurel, Eitan, 1986. " Price and Volume Effects Associated with Changes in the S&P 500 List: New Evidence for the Existence of Price Pressures," Journal of Finance, American Finance Association, vol. 41(4), pages 815-829, September.
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    Citations

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    Cited by:

    1. van Binsbergen, Jules H. & Koijen, Ralph S.J., 2017. "The term structure of returns: Facts and theory," Journal of Financial Economics, Elsevier, vol. 124(1), pages 1-21.
    2. Stefan Lewellen & Adi Sunderam & Mark Egan, 2017. "The Cross Section of Bank Value," 2017 Meeting Papers 1283, Society for Economic Dynamics.
    3. Tim A Kroencke & Maik Schmeling & Andreas Schrimpf, 2015. "Global Asset Allocation Shifts," BIS Working Papers 497, Bank for International Settlements.

    More about this item

    Keywords

    Asset pricing model; Differentiated product demand systems; Institutional investors; Liquidity; Portfolio choice;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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