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Dynamic General Equilibrium and T-Period Fund Separation

Author

Listed:
  • Gerber, Anke

    (Institute for Empirical Research in Economics, University of Zurich)

  • Hens, Thorsten

    (Institute for Empirical Research in Economics, University of Zurich)

  • Woehrmann, Peter

    (Institute for Empirical Research in Economics, University of Zurich)

Abstract

We consider a dynamic general equilibrium model with incomplete markets in which we derive conditions for separating the savings decision from the asset allocation decision. It is shown that with logarithmic utility functions this separation holds for any heterogeneity of discount factors while the generalization to constant relative risk aversion only holds for homogeneous discount factors. Our results have simple asset pricing implications for the time series and also the cross section of asset prices. It is found that on data from the DJIA a risk aversion weaker than in the logarithmic case fits best.

Suggested Citation

  • Gerber, Anke & Hens, Thorsten & Woehrmann, Peter, 2005. "Dynamic General Equilibrium and T-Period Fund Separation," Discussion Papers 2005/16, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2005_016
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    File URL: http://hdl.handle.net/11250/164160
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    References listed on IDEAS

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    More about this item

    Keywords

    Dynamic general equilibrium model; asset pricing;

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General

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