Live fast, die young: equilibrium and survival in large economies
Arthur Beddock
(1)
,
Elyès Jouini
(2, 3, 4)
Elyès Jouini
- Fonction : Auteur
- PersonId : 6654
- IdHAL : elyes-jouini
- ORCID : 0000-0003-2506-1726
- IdRef : 034263209
Résumé
We model a continuous-time economy with a continuum of investors who differ both in belief and time preference rate and analyze the impact of these heterogeneities on the behavior of financial markets. In particular, we allow the two types of heterogeneity to be correlated: a negative correlation means that the most optimistic agents are also the most patient ones. We fully characterize the risk-free rate which is procyclical and the market price of risk which is countercyclical. When the two types of heterogeneity are negatively correlated, the former is higher and the latter lower compared to the standard case. A negative correlation also leads to a higher market volatility. Moreover, we find that the trading volume increases with the variance of the belief heterogeneity distribution. Finally, the surviving agent of this economy is not necessarily the one who maximizes her utility over her lifetime: a shorter life might be more rewarding than a longer one.
Domaines
Economies et financesFormat du dépôt | Notice |
---|---|
Type de dépôt | Article dans une revue |
Titre |
en
Live fast, die young: equilibrium and survival in large economies
|
Résumé |
en
We model a continuous-time economy with a continuum of investors who differ both in belief and time preference rate and analyze the impact of these heterogeneities on the behavior of financial markets. In particular, we allow the two types of heterogeneity to be correlated: a negative correlation means that the most optimistic agents are also the most patient ones. We fully characterize the risk-free rate which is procyclical and the market price of risk which is countercyclical. When the two types of heterogeneity are negatively correlated, the former is higher and the latter lower compared to the standard case. A negative correlation also leads to a higher market volatility. Moreover, we find that the trading volume increases with the variance of the belief heterogeneity distribution. Finally, the surviving agent of this economy is not necessarily the one who maximizes her utility over her lifetime: a shorter life might be more rewarding than a longer one.
|
Auteur(s) |
Arthur Beddock
1
, Elyès Jouini
2, 3, 4
1
DRM -
Dauphine Recherches en Management
( 1032 )
- Place du Maréchal de Lattre de Tassigny 75775 Paris Cedex 16
- France
2
PJSE -
Paris Jourdan Sciences Economiques
( 578027 )
- 48 boulevard Jourdan 75014 Paris
- France
3
CEREMADE -
CEntre de REcherches en MAthématiques de la DEcision
( 60 )
- Place du Maréchal de Lattre de Tassigny 75775 - Paris Cedex 16
- France
4
PSE -
Paris School of Economics
( 301309 )
- 48 boulevard Jourdan 75014 Paris
- France
|
Langue du document |
Anglais
|
Nom de la revue |
|
Vulgarisation |
Non
|
Comité de lecture |
Oui
|
Audience |
Internationale
|
Commentaire |
Early Access: MAY 2020
|
Public visé |
Scientifique
|
Date de publication |
2020-05
|
Domaine(s) |
|
Mots-clés (JEL) |
|
Commentaire(s) |
|
Projet(s) ANR |
|
Mots-clés |
en
Heterogeneous beliefs, Heterogeneous time preference rates, Continuum of agents, Asset pricing, Market elimination, Surviving agent
|
DOI | 10.1007/s00199-020-01268-y |
UT key WOS | 000532381500001 |
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