Financial Markets Equilibrium with Heterogeneous Agents

This paper presents an equilibrium model in a pure exchange economywhen investors have three possible sources of heterogeneity. Investorsmay differ in their beliefs, in their level of risk aversion andin their time preference rate. We study the impact of investors heterogeneityon equilibrium properties. In particular, we analyze theconsumption shares, the market price of risk, the risk free rate, thebond prices at different maturities, the stock price and volatility aswell as the stock’s cumulative returns, and optimal portfolio strategies.We relate the heterogeneous economy with the family of associated homogeneouseconomies with only one class of investors. We considercross sectional as well as long run properties.[...]