IDEAS home Printed from https://ideas.repec.org/p/sad/wpaper/87.html
   My bibliography  Save this paper

Equilibrium Portfolios in the Neoclassical Growth Model

Author

Listed:
  • Emilio Espino

    (Department of Economics, Universidad de San Andres)

Abstract

This paper studies equilibrium portfolios in the standard neoclassical growth model under uncertainty with heterogeneous agents and dinamically complete markets. Preferences are purposely restricted to be quasi-homothetic. The main source of heterogeneity across agents is due to different endowments of shares of the representative firm at date 0. Fixing portfolios is the optimal strategy in stationary endowment economies with dinamically complete markets. Whenever an environment displays changing degrees of heterogeneity across agents, the trading strategy of fixed portfolios cannot be optimal in equilibrium. Very importantly, our framework can generate changing heterogeneity if and only if either minimum consumption requirements are not zero or labor income is not zero and the value of human and non-human wealth are linearly independent.

Suggested Citation

  • Emilio Espino, 2005. "Equilibrium Portfolios in the Neoclassical Growth Model," Working Papers 87, Universidad de San Andres, Departamento de Economia, revised Dec 2005.
  • Handle: RePEc:sad:wpaper:87
    as

    Download full text from publisher

    File URL: https://webacademicos.udesa.edu.ar/pub/econ/doc87.pdf
    File Function: First version, 2005
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    2. Jermann, Urban J., 2010. "The equity premium implied by production," Journal of Financial Economics, Elsevier, vol. 98(2), pages 279-296, November.
    3. Espino, Emilio, 2007. "Equilibrium portfolios in the neoclassical growth model," Journal of Economic Theory, Elsevier, vol. 137(1), pages 673-687, November.
    4. Le Van, Cuong & Morhaim, Lisa, 2002. "Optimal Growth Models with Bounded or Unbounded Returns: A Unifying Approach," Journal of Economic Theory, Elsevier, vol. 105(1), pages 158-187, July.
    5. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    6. Alvarez, Fernando & Stokey, Nancy L., 1998. "Dynamic Programming with Homogeneous Functions," Journal of Economic Theory, Elsevier, vol. 82(1), pages 167-189, September.
    7. William A. Brock, 1982. "Asset Prices in a Production Economy," NBER Chapters, in: The Economics of Information and Uncertainty, pages 1-46, National Bureau of Economic Research, Inc.
    8. John J. McCall, 1982. "The Economics of Information and Uncertainty," NBER Books, National Bureau of Economic Research, Inc, number mcca82-1.
    9. Kenneth L. Judd & Felix Kubler & Karl Schmedders, 2003. "Asset Trading Volume with Dynamically Complete Markets and Heterogeneous Agents," Journal of Finance, American Finance Association, vol. 58(5), pages 2203-2217, October.
    10. Bossaerts, Peter & Zame, William R., 2006. "Asset trading volume in infinite-horizon economies with dynamically complete markets and heterogeneous agents: Comment," Finance Research Letters, Elsevier, vol. 3(2), pages 96-101, June.
    11. Emilio Espino & Thomas Hintermaier, 2009. "Asset trading volume in a production economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 39(2), pages 231-258, May.
    12. Lawrence J. Christiano & Michele Boldrin & Jonas D. M. Fisher, 2001. "Habit Persistence, Asset Returns, and the Business Cycle," American Economic Review, American Economic Association, vol. 91(1), pages 149-166, March.
    13. Chatterjee, Satyajit, 1994. "Transitional dynamics and the distribution of wealth in a neoclassical growth model," Journal of Public Economics, Elsevier, vol. 54(1), pages 97-119, May.
    14. William A. Brock & Leonard J. Mirman, 2001. "Optimal Economic Growth And Uncertainty: The Discounted Case," Chapters, in: W. D. Dechert (ed.), Growth Theory, Nonlinear Dynamics and Economic Modelling, chapter 1, pages 3-37, Edward Elgar Publishing.
    15. Jermann, Urban J., 1998. "Asset pricing in production economies," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 257-275, April.
    16. Francesc Obiols-Homs & Carlos Urrutia, 2005. "Transitional dynamics and the distribution of assets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(2), pages 381-400, February.
    17. Benhabib, Jess & Rustichini, Aldo, 1994. "A note on a new class of solutions to dynamic programming problems arising in economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 18(3-4), pages 807-813.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Emilio Espino & Thomas Hintermaier, 2009. "Asset trading volume in a production economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 39(2), pages 231-258, May.
    2. Espino Emilio, 2014. "Optimal portfolios with wealth-varying risk aversion in the neoclassical growth model," The B.E. Journal of Macroeconomics, De Gruyter, vol. 14(1), pages 1-26, January.
    3. David N. DeJong & Emilio Espino, 2007. "The Cyclical Behavior of Equity Turnover," Working Paper 294, Department of Economics, University of Pittsburgh, revised Jun 2010.
    4. Espino, Emilio, 2007. "Equilibrium portfolios in the neoclassical growth model," Journal of Economic Theory, Elsevier, vol. 137(1), pages 673-687, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. David N. DeJong & Emilio Espino, 2007. "The Cyclical Behavior of Equity Turnover," Working Paper 294, Department of Economics, University of Pittsburgh, revised Jun 2010.
    2. Emilio Espino & Thomas Hintermaier, 2009. "Asset trading volume in a production economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 39(2), pages 231-258, May.
    3. Balvers, Ronald J. & Huang, Dayong, 2007. "Productivity-based asset pricing: Theory and evidence," Journal of Financial Economics, Elsevier, vol. 86(2), pages 405-445, November.
    4. Akdeniz, Levent & Dechert, W. Davis, 2007. "The equity premium in Brock's asset pricing model," Journal of Economic Dynamics and Control, Elsevier, vol. 31(7), pages 2263-2292, July.
    5. John Stachurski, 2009. "Economic Dynamics: Theory and Computation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012774, April.
    6. Akdeniz, Levent & Dechert, W. Davis, 1997. "Do CAPM results hold in a dynamic economy? A numerical analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 21(6), pages 981-1003, June.
    7. Grüne, Lars & Semmler, Willi, 2008. "Asset pricing with loss aversion," Journal of Economic Dynamics and Control, Elsevier, vol. 32(10), pages 3253-3274, October.
    8. Peter Woehrmann & Willi Semmler & Martin Lettau, "undated". "Nonparametric Estimation of the Time-varying Sharpe Ratio in Dynamic Asset Pricing Models," IEW - Working Papers 225, Institute for Empirical Research in Economics - University of Zurich.
    9. Belo, Frederico, 2010. "Production-based measures of risk for asset pricing," Journal of Monetary Economics, Elsevier, vol. 57(2), pages 146-163, March.
    10. Posch, Olaf, 2011. "Risk premia in general equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1557-1576, September.
    11. Cochrane, John H., 2005. "Financial Markets and the Real Economy," Foundations and Trends(R) in Finance, now publishers, vol. 1(1), pages 1-101, July.
    12. Bianconi, Marcelo, 2003. "Private information, growth, and asset prices with stochastic disturbances," International Review of Economics & Finance, Elsevier, vol. 12(1), pages 1-24.
    13. Kevin L. Reffett & Frank Schorfheide, 2000. "Evaluating Asset Pricing Implications of DSGE Models," Econometric Society World Congress 2000 Contributed Papers 1630, Econometric Society.
    14. Krebs, Tom & Wilson, Bonnie, 2004. "Asset returns in an endogenous growth model with incomplete markets," Journal of Economic Dynamics and Control, Elsevier, vol. 28(4), pages 817-839, January.
    15. Miguel Palacios, 2010. "Human Capital as an Asset Class: Implications from a General Equilibrium Model," Working Papers 2011-016, Human Capital and Economic Opportunity Working Group.
    16. Kevin E. Beaubrun-Diant & Julien Matheron, 2008. "Rentabilités d'actifs et fluctuations économiques : une perspective d'équilibre général dynamique et stochastique," Economie & Prévision, La Documentation Française, vol. 0(2), pages 35-63.
    17. Lars Lochstoer & Harjoat S. Bhamra, 2009. "Return Predictability and Labor Market Frictions in a Real Business Cycle Model," 2009 Meeting Papers 1257, Society for Economic Dynamics.
    18. William A. Brock & Blake LeBaron, 1990. "Liquidity Constraints in Production-Based Asset-Pricing Models," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 231-256, National Bureau of Economic Research, Inc.
    19. Claudio Campanale & Rui Castro & Gian Luca Clementi, 2010. "Asset Pricing in a Production Economy with Chew-Dekel Preferences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 379-402, April.
    20. Lu Zhang, 2017. "The Investment CAPM," European Financial Management, European Financial Management Association, vol. 23(4), pages 545-603, September.

    More about this item

    Keywords

    neoclassical growth model; equilibrium portfolios; complete markets;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sad:wpaper:87. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Maria Amelia Gibbons (email available below). General contact details of provider: https://edirc.repec.org/data/desanar.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.