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The Composition of Market Participants and Asset Dynamics

Abstract Views
1629
Author
Chanik Jo
Category
Financial
Date Posted
2019/04/06
Date Retrieved
2022/11/22
Date Revised
2022/11/22
Date Written
2022/11/22
Description
We develop a dynamic equilibrium model where heterogeneous investors endogenously choose to enter/exit the stock market. We characterize the equilibrium and present a conditional consumption-CAPM. The model implies small changes in the composition of stockholders which generate a strongly countercyclical stockholders’ amount of consumption risk. The model provides a new perspective on the main drivers of asset dynamics. It is the procyclical consumption risk-sharing implied by changes in stockholders composition that contributes to the dynamics of risk premium excess volatility and price-dividend ratio. We provide empirical evidence on market participation amount of risk and price of risk supporting our theory.
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JEL Classifications
G11 G12 G17
Keywords
time-varying composition of stockholders consumption risk heterogeneous investors conditional consumption-based asset pricing labor income recursive utility
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Pages
98
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URL
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4283331
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