A Multiplier Approach to Understanding theMacro Implications of Household Finance

Our paper examines the impact of heterogeneous trading technologies for households onasset prices and the distribution of wealth. We distinguish between passive traders whohold fixed portfolios of stocks and bonds, and active traders who adjust their portfolios tochanges in the investment opportunity set. The fraction of total wealth held by active tradersis critical for asset prices, because only these traders respond to variation in state pricesand hence absorb the residual aggregate risk created by non-participants. We calibrate thisheterogeneity to match the equity premium and the risk-free rate. The calibrated modelreproduces the skewness and kurtosis of the wealth distribution in the data.[...] [YiLi Chien, Harold Cole, Hanno Lustig

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Year of publication:	2008-03-14
Authors:	Chien, YiLi ; Cole, Harold Linh ; Lustig, Hanno
Institutions:	National Centre of Competence in ResearchFinancial Valuation and Risk Management
Subject:	Risikoverteilung \| Öffentlicher Haushalt

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1 Introductio
2 Model
2.1 Environment
2.2 Asset Trading Technologies
2.3 Equilibrium
3 Solving for Equilibrium Allocations and Prices
3.1 Measurability Conditions
3.2 Martingale Conditions
3.3 Aggregate Multiplier
3.4 Savings and Investment Behavior of Active Traders
4 Computation
4.1 Updating function for household multipliers
4.2 Aggregate multiplier updating operator
4.3 Algorithm
4.4 The Separability of Aggregate and Idiosyncratic Risk
4.5 Shifting Aggregate Risk
5 Quantitative Results
5.1 Calibration
5.2 Risk and Return
5.3 Portfolio and Consumption Choice
5.4 Wealth and Asset Class Share Distribution5.4 Wealth and Asset Class Share Distribution
5.5 Robustness
6 Conclusion
References
A Proofs

Persistent link: https://www.econbiz.de/10005868973