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Endogenous Stock Price Fluctuations with Dynamic Self-Control Preferences

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  • Airaudo, Marco

    (School of Economics)

Abstract

This paper studies the global equilibrium dynamics implied by a Lucas’ tree asset pricing model where the representative agent has dynamic self-control preferences, as defined by Gul and Pesendorfer (Econometrica, 2004). It shows that endogenous cycles of period 2 and higher, as well as chaotic dynamics exist provided temptation utility is sufficiently important (with respect to standard commitment utility) and sufficiently convex. For parameterizations leading to complex deterministic dynamics, the model also admits stationary and non-stationary sunspot equilibria.

Suggested Citation

  • Airaudo, Marco, 2016. "Endogenous Stock Price Fluctuations with Dynamic Self-Control Preferences," School of Economics Working Paper Series 2016-2, LeBow College of Business, Drexel University.
    • Handle: RePEc:ris:drxlwp:2016_002
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    References listed on IDEAS

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    5. Lagos, Ricardo & Wright, Randall, 2003. "Dynamics, cycles, and sunspot equilibria in 'genuinely dynamic, fundamentally disaggregative' models of money," Journal of Economic Theory, Elsevier, vol. 109(2), pages 156-171, April.
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    Cited by:

    1. Marco Airaudo, 2017. "Complex stock price dynamics under Max Weber’s spirit of capitalism hypothesis," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 64(1), pages 47-73, June.

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    More about this item

    Keywords

    Asset Pricing; Temptation; Self-Control; Endogenous Cycles; Chaotic Dynamics; Sunspot Equilibrium;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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