Asset trading volume in a production economy

Espino, Emilio; Hintermaier, Thomas

doi:10.1007/s00199-007-0290-z

Cited by 5 publications

(6 citation statements)

References 19 publications

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“…In our setting, when A0 holds the latter is guaranteed by strengthening A1 to require that the true parameter, θ * , is in the support of some agent's prior. 11 The case where these assumptions hold for every agent is considered in section 6. Section 7 deals with the cases in which either (i) or (ii) does not hold.…”

Section: Remarkmentioning

confidence: 99%

“…Agents' preferences have a subjective expected utility representation that is time separable with identical discount factors; i.e., for every c i ∈ C(s 0 ) her preferences are 11 The finiteness of S is essential for this learning result. 12 We adopt the convention of writting μ i,0 ({θ}) as μ i,0 (θ) for all θ.…”

Section: Preferencesmentioning

confidence: 99%

“…Intuitively, A i (ξ, α, μ) is the transfer needed to support as a competitive equilibrium the PO allocation parametrized by α given (ξ, μ) (see Espino and Hintermaier [11] for further discussion.) In Theorem 3, we show that A i is well-defined.…”

Section: Competitive Decentralizationmentioning

confidence: 99%

“…Since solving directly for the portfolios of a dynamically complete markets equilibrium is not always possible, we follow an indirect approach developed by Espino and Hintermaier [11] that hinges on studying the portfolio that decentralizes a Pareto optimal allocation as a competitive equilibrium. The difficulty is that belief heterogeneity makes Pareto optimal allocations history dependent because optimality requires that the ratio of marginal utilities at any partial history must be inversely proportional to the ratio of the agents' priors about that partial history.…”

Section: Introductionmentioning

confidence: 99%

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The dynamics of efficient asset trading with heterogeneous beliefs

Beker

Espino

2011

Journal of Economic Theory

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This paper analyzes the dynamic properties of portfolios that sustain dynamically complete markets equilibria when agents have heterogeneous priors. We argue that the conventional wisdom that belief heterogeneity generates continuous trade and significant fluctuations in individual portfolios may be correct but it needs some qualifications. We consider an infinite horizon stochastic endowment economy populated by many Bayesian agents with heterogeneous priors over the stochastic process of the states of nature. Our approach hinges on studying the portfolios that decentralize Pareto optimal allocations. Since these allocations are typically history dependent, we propose a methodology to provide a complete recursive characterization when agents believe that the process of states of nature is i.i.d. but disagree about the probability of the states. We show that even though heterogeneous priors within that class can indeed generate genuine changes in the portfolios of any dynamically complete markets equilibrium, these changes vanish with probability one if the true process consists of i.i.d. draws from a common distribution and the support of every agent's prior belief contains the true distribution. Finally, we provide examples in which asset trading does not vanish because either (i) no agent learns the true conditional probability of the states or (ii) some agent does not know the true process generating the data is i.i.d.Keywords: heterogeneous beliefs, asset trading, dynamically complete markets. * We thank Rody Manuelli and Juan Dubra for detailed comments. We are also very grateful to one of the referees for very detailed comments that greatly improved the paper and the proof of Proposition 16. All the remaining errors are ours.

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Section: Remarkmentioning

confidence: 99%

Section: Preferencesmentioning

confidence: 99%

Section: Competitive Decentralizationmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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The dynamics of efficient asset trading with heterogeneous beliefs

Beker

Espino

2011

Journal of Economic Theory

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“…In addressing this issue, Bossaerts and Zame (2006), Espino and Hintermaier (2009), and Espino (2007) established that when the model economy features changing degrees of heterogeneity across agents, fixed-portfolio trading strategies will not be optimal in equilibrium. By studying a stationary pure exchange economy with complete markets, Judd, Kubler, and Schmedders (2003) abstracted from changing heterogeneity and showed that equilibrium trading disappears.…”

Section: Introductionmentioning

confidence: 99%

The cyclical behavior of equity turnover

DeJong¹,

Espino²

2011

Quantitative Economics

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We measure the extent to which the cyclical behavior of the turnover of equity shares generated by individual investors on the New York Stock Exchange can be accounted for by a single source of trade embedded in a neoclassical growth economy with dynamically complete markets. The source of trade is heterogeneity in agents' financial wealth. In the post‐war United States, turnover has been more than seven times as volatile as output and has exhibited asynchronous cyclical characteristics: lagged turnover has co‐varied positively with output and led turnover negatively. The baseline model, calibrated to match the mean behavior of asset returns and the distribution of wealth across households, accounts for 29% of the level of turnover observed in the data and 22% of the volatility. The asynchronous relationship observed between turnover and output is puzzling.

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Equilibrium portfolios in the neoclassical growth model

Espino

2007

Journal of Economic Theory

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Asset trading volume in a production economy

Abstract: Asset trading, Complete markets, Production economies, C61, D50, E20, G11,

Cited by 5 publications

References 19 publications

The dynamics of efficient asset trading with heterogeneous beliefs

The dynamics of efficient asset trading with heterogeneous beliefs

The cyclical behavior of equity turnover

Equilibrium portfolios in the neoclassical growth model

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