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Resolving asset pricing puzzles using price-impact

Author

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  • Xiao Chen
  • Jin Hyuk Choi
  • Kasper Larsen
  • Duane J. Seppi

Abstract

We solve in closed-form an equilibrium model in which a finite number of exponential investors continuously consume and trade with price-impact. Compared to the analogous Pareto-efficient equilibrium model, price-impact has an amplification effect on risk-sharing distortions that helps resolve the interest rate puzzle and the stock-price volatility puzzle and, to a lesser extent, affects the equity premium puzzle.

Suggested Citation

  • Xiao Chen & Jin Hyuk Choi & Kasper Larsen & Duane J. Seppi, 2019. "Resolving asset pricing puzzles using price-impact," Papers 1910.02466, arXiv.org, revised Jun 2020.
    • Handle: RePEc:arx:papers:1910.02466
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    References listed on IDEAS

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    Cited by:

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