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Life-Cycle Portfolio Choice, the Wealth Distribution and Asset Prices

Author

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  • Felix KUBLER

    (University of Zurich (ISB) and Swiss Finance Insitute)

  • Karl SCHMEDDERS

    (University of Zurich (IOR) and Swiss Finance Insitute)

Abstract

In this paper we consider a canonical stochastic overlapping generations economy with sequentially complete markets. We examine how aggregate and individual shocks translate to changes in the distribution of wealth and how these movements in the wealth distribution affect asset prices and the interest rate. We show that effects are generally small if agents have identical beliefs but that differences in opinion lead to large movements in the wealth distribution. The interplay of belief heterogeneity and life-cycle savings motives creates very large movements of asset prices and can poten- tially generate realistic moments of asset returns.

Suggested Citation

  • Felix KUBLER & Karl SCHMEDDERS, 2010. "Life-Cycle Portfolio Choice, the Wealth Distribution and Asset Prices," Swiss Finance Institute Research Paper Series 10-21, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1021
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    Cited by:

    1. Dan Vu Cao, 2010. "Collateral Shortages, Asset Price And Investment Volatility With Heterogeneous Beliefs," 2010 Meeting Papers 1233, Society for Economic Dynamics.
    2. Andrew Glover & Jonathan Heathcote & Dirk Krueger & José-Víctor Ríos-Rull, 2020. "Intergenerational Redistribution in the Great Recession," Journal of Political Economy, University of Chicago Press, vol. 128(10), pages 3730-3778.
    3. Roger Farmer, 2014. "Asset Prices in a Lifecycle Economy," NBER Working Papers 19958, National Bureau of Economic Research, Inc.
    4. Stefanie Schraeder, 2016. "Information Processing and Non-Bayesian Learning in Financial Markets," Review of Finance, European Finance Association, vol. 20(2), pages 823-853.

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    More about this item

    Keywords

    OLG economy; heterogeneous beliefs; life-cycle portfolio choice; wealth distribution; market volatility;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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