In a two-period finite competitive exchange economy with incomplete financial markets and retrading, we show the generic existence of financial innovation which decreases equilibrium price volatility (as well as innovation which increases it). The existence

During the 1990s, asset prices increased significantly in North America and Western Europe and in particular in the United States. This surge in asset prices coincided with the baby boom generation entering its peak earnings and savings years. We use an OLG model with production to ask whether...

We use a calibrated dynamic general equilibrium economy with heterogeneous beliefs to study the effects of a short--selling constraint on stock prices, stock price volatility, and interest rates. We find large stock price and volatility effects from heterogeneous beliefs, without introducing...