Asset pricing with heterogeneous preferences, beliefs, and portfolio constraints

Chabakauri, Georgy (2014) Asset pricing with heterogeneous preferences, beliefs, and portfolio constraints. Journal of Monetary Economics, online . pp. 1-14. ISSN 0304-3932

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Abstract

Portfolio constraints are widespread and have significant effects on asset prices. This paper studies the effects of constraints in a dynamic economy populated by investors with different risk aversions and beliefs about the rate of economic growth. The paper provides a comparison of various constraints and conditions under which these constraints help match certain empirical facts about asset prices. Under these conditions, borrowing and short-sale constraints decrease stock return volatilities, whereas limited stock market participation constraints amplify them. Moreover, borrowing constraints generate spikes in interest rates and volatilities and have stronger effects on asset prices than short-sale constraints.

Item Type:	Article
Official URL:	http://www.sciencedirect.com/science/journal/03043...
Additional Information:	© 2014 Elsevier B.V.
Library of Congress subject classification:	H Social Sciences > HF Commerce H Social Sciences > HG Finance
Journal of Economic Literature Classification System:	D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D52 - Incomplete Markets G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
Sets:	Departments > Finance Collections > Economists Online
Funders:	Paul Woolley Center, LSE
Date Deposited:	30 Jan 2015 10:15
URL:	http://eprints.lse.ac.uk/60810/

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