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Index Funds, Asset Prices, and the Welfare of Investors

Schmalz, Martin C.; Zame, William R. - 2023

We present a general equilibrium model in which heterogeneous investors choose among bonds, stocks, and an Index Fund holding the market portfolio. We show that, under standard assumptions, an equilibrium exists. We then derive predictions for equilibrium asset prices, investor behavior, and...

Persistent link: https://www.econbiz.de/10014255122

Beta Bubbles

Jylha, Petri - 2017

We show that an increase in a stock's breadth of institutional ownership or turnover is followed by a significant but temporary increase in its CAPM beta estimate and a decrease in its CAPM alpha. The increasing effect of breadth of ownership on beta estimates strengthens if we classify...

Persistent link: https://www.econbiz.de/10012971144

Institutional Investors, Heterogeneous Benchmarks and the Comovement of Asset Prices

Buffa, Andrea M - 2018

We study the equilibrium implications of a multi-asset economy in which asset managers are subject to different benchmarks, and demonstrate how heterogeneous benchmarking generates a mechanism through which fundamental shocks propagate across assets. Fluctuations in asset managers' capital...

Persistent link: https://www.econbiz.de/10012910534

Two Trees with Heterogeneous Beliefs : Spillover Effect of Disagreement

Han, Bing - 2017

In a model where investors disagree about the fundamentals of two stocks, the state price density depends on investor disagreements for both stocks, especially the larger stock. This implies that disagreement among investors in a large firm has a spillover effect on the pricing of other stocks...

Persistent link: https://www.econbiz.de/10012972769

Behavioral Finance - Asset Prices Predictability, Equity Premium Puzzle, Volatility Puzzle : The Rational Finance Approach

Rachev, Svetlozar T. - 2020

In this paper we address three main objections of behavioral finance to the theory of rational finance, considered as … “anomalies” the theory of rational finance cannot explain: (i) Predictability of asset returns; (ii) The Equity Premium; (iii …) The Volatility Puzzle. We offer resolutions of those objections within the rational finance. We do not claim that those …

Persistent link: https://www.econbiz.de/10012842392

Investor Betas

Lewis, Ryan; Santosh, Shrihari - 2021

Investors’ return on their portfolios, as proxied by the market, is a theoretically appealing but empirically unsuccessful asset pricing factor. In practice, many institutional investors choose to deviate substantially from the market portfolio. We propose a simple model in the spirit of...

Persistent link: https://www.econbiz.de/10013249518

Asset Prices and Wealth Dynamics in a Financial Market with Endogenous Liquidation Risk

Dindo, Pietro - 2018

Within a financial market where a risk-free bond and a long-lived risky asset are exchanged by investors with heterogeneous trading rules, we assume that the investors most exposed to the risky asset are subject to joint liquidation needs. The latter encompass a risk whenever the market impact...

Persistent link: https://www.econbiz.de/10012930535

A Concave Security Market Line

De Giorgi, Enrico - 2018

We provide theoretical and empirical arguments in favor of a diminishing marginal premium for market risk. In capital market equilibrium with binding portfolio restrictions, investors with different risk aversion levels generally hold different sets of risky securities. Whereas the traditional...

Persistent link: https://www.econbiz.de/10012940481

Asset pricing with large investors

Malamud, Semyon; Teguia, Alberto - 2017

We derive closed form expressions for equilibrium asset prices and liquidity in an economy populated by a finite number of large, strategic, risk averse investors. The model allows for arbitrary risk preferences, any number of assets, and an arbitrary distribution of asset payoffs. In...

Persistent link: https://www.econbiz.de/10011874850

Asset Pricing with Index Investing

Chabakauri, Georgy - 2020

volatility and stock return correlations but reduction in risk sharing decreases them. Overall, indexing decreases market … volatility but has an ambiguous effect on the correlations. Also, index investing decreases an investor's welfare, but indexing …

Persistent link: https://www.econbiz.de/10012856425