Heterogeneous Preferences and Asset Prices under Endogenously Incomplete Markets

Research output: Conference PapersRGC 33 - Other conference paper

Abstract

I study how heterogeneous preferences (heterogeneity in risk aversion and time discount factor) affect asset prices and risk sharing in endowment economy, when financial markets are endogenously incomplete due to the contracting friction of limited enforcement. I find that heterogeneous preferences lead to more conditional variation in the stochastic discount factor (SDF), which results in a higher and more volatile equity premium. In contrast to the standard findings under heterogeneous preferences, the long run distribution of agents’ consumption is stationary and nondegenerate, because limited enforcement entitles the agents to the option of autarky for all times.
Original languageEnglish
Publication statusPresented - 19 Dec 2019
Event17th Paris December Finance Meeting - Novotel Paris les Halles Hotel, Paris, France
Duration: 19 Dec 201919 Dec 2019
https://www.paris-december.eu/conference/paris-december-2019
https://www.paris-december.eu/conference/paris-december-2019#Program

Conference

Conference17th Paris December Finance Meeting
Country/TerritoryFrance
CityParis
Period19/12/1919/12/19
Internet address

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