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Dynamic Wealth Redistribution, Trade, and Asset Pricing

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  • Simon Benninga
  • Joram Mayshar

Abstract

We relate wealth redistribution, asset pricing, and trade in financial assets by introducing heterogeneous agents into a Lucas tree-model. Heterogeneity of agents causes trade in financial assets and dynamic wealth redistribution. When consumers have time-separable, constant elasticity utilities with constant time-discount factors, the price-representative consumer has declining temporal relative risk aversion and intertemporal discount factors. Resulting asset prices "over-react": Adverse aggregate consumption shocks cause wealth redistribution towards more risk averse consumers, reinforcing the adverse market value effect. Interest rates, risk premia, return volatility, and trade volume exhibit time-variance.

Suggested Citation

  • Simon Benninga & Joram Mayshar, "undated". "Dynamic Wealth Redistribution, Trade, and Asset Pricing," Rodney L. White Center for Financial Research Working Papers 8-93, Wharton School Rodney L. White Center for Financial Research.
    • Handle: RePEc:fth:pennfi:8-93
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    Cited by:

    1. Jiang, Wang, 1996. "The term structure of interest rates in a pure exchange economy with heterogeneous investors," Journal of Financial Economics, Elsevier, vol. 41(1), pages 75-110, May.
    2. Wang, Jiang, 1959-, 1995. "The term structure of interest rates in a pure exchange economy with heterogeneous investors," Working papers 3839-95., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    3. Jiang Wang, 1995. "The Term Structure of Interest Rates in a Pure Exchange Economy with Heterogeneous Investors," NBER Working Papers 5172, National Bureau of Economic Research, Inc.

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