Heterogeneous Preferences and Asset Prices under Endogenously Incomplete Markets

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)33_Other conference paper

View graph of relations

Author(s)

Related Research Unit(s)

Detail(s)

Original languageEnglish
Publication statusPresented - 11 Jul 2019

Conference

TitleChina International Conference in Finance 2019
PlaceChina
CityGuangzhou
Period9 - 12 July 2019

Abstract

In this paper, I study how heterogeneous preferences (heterogeneity in risk aversion and time discount factor) affect asset prices and risk sharing in a two-agent endowment economy, when 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, since limited enforcement entitles the agents to the option of autarky for all times.

Research Area(s)

  • Heterogeneous Preferences, Equity Premium, Limited Enforcement, Stochastic Discount Factor

Citation Format(s)

Heterogeneous Preferences and Asset Prices under Endogenously Incomplete Markets. / Luo, Ding.

2019. China International Conference in Finance 2019, Guangzhou, China.

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)33_Other conference paper