Asset Pricing in an Exchange Economy with Bayesian Agents

2007 ◽  
Author(s):  
Francisco Azeredo ◽  
Viral Shah
Keyword(s):  
Asset Pricing ◽  
Exchange Economy

scholarly journals Portfolio Claustrophobia: Asset Pricing in Markets with Illiquid Assets

2009 ◽  
Vol 99 (4) ◽  
pp. 1119-1144 ◽  
Author(s):  
Francis A Longstaff
Keyword(s):  
Asset Pricing ◽  
Heterogeneous Agents ◽  
Exchange Economy ◽  
Equilibrium Price ◽  
The Other ◽  
Dramatic Effect ◽  
Blackout Period ◽  
Illiquid Assets

Many classes of assets are illiquid or nonmarketable in that they cannot always be traded immediately. Thus, a portfolio position in these becomes at least temporarily irreversible. We study the asset-pricing implications of this type of illiquidity in an exchange economy with heterogeneous agents. In this market, one asset is always liquid. The other asset can be traded initially, but then not again until after a “blackout” period. Illiquidity has a dramatic effect. Agents abandon diversification and choose polarized portfolios instead. The value of liquidity can represent a large portion of the equilibrium price of an asset. (JEL G11, G12)

scholarly journals Equity Premium with Habits, Wealth Inequality and Background Risk

2021 ◽  
Vol 14 (7) ◽  
pp. 321
Author(s):  
Christos I. Giannikos ◽  
Georgios Koimisis
Keyword(s):  
Asset Pricing ◽  
Risk Premium ◽  
Equity Premium ◽  
Wealth Inequality ◽  
Exchange Economy ◽  
Background Risk ◽  
Equity Risk Premium ◽  
Income Uncertainty ◽  
Equity Risk ◽  
Asset Pricing Puzzles

In an exchange economy with endowment inequality, we investigate how preferences with external habits affect the equity risk premium. We show that the dynamics of external additive habits with wealth inequality are complex when a background risk is present. It is ambiguous whether wealth inequality will increase or decrease the equity premium even when the income uncertainty is low. This result extends literature by suggesting that wealth inequality has a small role in explaining asset pricing puzzles.

scholarly journals Incentive Constrained Risk Sharing, Segmentation, and Asset Pricing

2021 ◽  
Vol 111 (11) ◽  
pp. 3575-3610
Author(s):  
Bruno Biais ◽  
Johan Hombert ◽  
Pierre-Olivier Weill
Keyword(s):  
Asset Pricing ◽  
Risk Sharing ◽  
Optimal Transport ◽  
Exchange Economy ◽  
Expected Returns ◽  
Factor Loadings ◽  
Incentive Problems ◽  
Marginal Rates Of Substitution ◽  
Dynamic Exchange

Incentive problems make securities’ payoffs imperfectly pledgeable, limiting agents’ ability to issue liabilities. We analyze the equilibrium consequences of such endogenous incompleteness in a dynamic exchange economy. Because markets are endogenously incomplete, agents have different intertemporal marginal rates of substitution, so that they value assets differently. Consequently, agents hold different portfolios. This leads to endogenous markets segmentation, which we characterize with optimal transport methods. Moreover, there is a basis going always in the same direction: the price of a security is lower than that of replicating portfolios of long positions. Finally, equilibrium expected returns are concave in factor loadings. (JEL D51, D52, G11, G12)

Revisiting Asset Pricing Puzzles in an Exchange Economy

2011 ◽  
Vol 24 (3) ◽  
pp. 629-674 ◽  
Author(s):  
Christine A. Parlour ◽  
Richard Stanton ◽  
Johan Walden
Keyword(s):  
Asset Pricing ◽  
Exchange Economy ◽  
Asset Pricing Puzzles

Freedom Indices and Capital Asset Pricing Model: Some Malaysian Evidence

2020 ◽  
Vol 1 (1) ◽  
pp. 1-21
Author(s):  
Ying Tay Lee ◽  
Devinaga Rasiah ◽  
Ming Ming Lai
Keyword(s):  
Human Rights ◽  
Asset Pricing ◽  
Stock Returns ◽  
Firm Size ◽  
Explanatory Power ◽  
Least Square ◽  
Press Freedom ◽  
Capital Asset Pricing ◽  
Capital Asset ◽  
Cross Sectional

Human rights and fundamental freedoms such as economic, political, and press freedoms vary widely from country to country. It creates opportunity and risk in investment decisions. Thus, this study is carried out to examine if the explanatory power of the model for capital asset pricing could be improved when these human rights movement indices are included in the model. The sample for this study comprises of 495 stocks listed in Bursa Malaysia, covering the sampling period from 2003 to 2013. The model applied in this study employed the pooled ordinary least square regression estimation. In addition, the robustness of the model is tested by using firm size as a controlled variable. The findings show that market beta as well as the economic and press freedom indices could explain the cross-sectional stock returns of the Malaysian stock market. By controlling the firm size, it adds marginally to the explanation of the extended CAP model which incorporated economic, political, and press freedom indices.

Risk Factors of Collateralized Loan Obligations and Corporate Bonds

2020 ◽  
Vol 32 (6) ◽  
pp. 347-355
Author(s):  
Mark Wahrenburg ◽  
Andreas Barth ◽  
Mohammad Izadi ◽  
Anas Rahhal
Keyword(s):  
Risk Factors ◽  
Risk Factor ◽  
Asset Pricing ◽  
Systemic Risk ◽  
Corporate Bonds ◽  
Risk Exposure ◽  
Expected Returns ◽  
Yield Spreads ◽  
Pricing Factors ◽  
Return Difference

AbstractStructured products like collateralized loan obligations (CLOs) tend to offer significantly higher yield spreads than corporate bonds (CBs) with the same rating. At the same time, empirical evidence does not indicate that this higher yield is reduced by higher default losses of CLOs. The evidence thus suggests that CLOs offer higher expected returns compared to CB with similar credit risk. This study aims to analyze whether this return difference is captured by asset pricing factors. We show that market risk is the predominant risk factor for both CBs and CLOs. CLO investors, however, additionally demand a premium for their risk exposure towards systemic risk. This premium is inversely related to the rating class of the CLO.

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