This paper studies the effects of investors’ heterogeneous beliefs on the trading volume,price volatility, and liquidity of stocks. Following Kurz and Motolese (2008), wepropose a simple theoretical model to show that the equilibrium stock price is linearlyand positively correlated with market...

We solve the problem of optimal securitization for an issuer facing heterogeneous investorswith arbitrary time and risk preferences. We show that the optimal securitizationis characterized by multiple nonlinear tranches, and each investor gets a portfolio of thesetranches. In particular, when...

We study survival, price impact and portfolio impact in heterogeneouseconomies. We show that, under the equilibrium risk-neutral measure,long-run price impact is in fact equivalent to survival, whereas longrunportfolio impact is equivalent to survival under an agent-specic,wealth-forward...

We study how the interaction of agents with different beliefs about a firm’s future cash flows determines the jointbehavior of credit spreads, option implied volatilities, and stock returns. Beliefs heterogeneity influences the pricing kernelin a way that supports more realistic credit spreads...

We present a parsimonious and tractable general equilibrium model featuring acontinuum of overlapping generations, as in Blanchard (1985). In addition, we assumethat agents have standard utilities exhibiting constant relative risk aversion and canbe born with differing risk aversions and...

We prove that, in a heterogeneous economy with scale invariantutilities, the yield of a long term bond is determined by the agent with maximalexpected marginal utility.We also prove that the same result holds for the longterm forward rates.Furthermore, we apply Cramer’s large deviations...

We establish universal bounds for asset prices in heterogeneouscomplete market economies with scale invariant preferences. Namely, for eachagent in the economy we consider an artificial homogeneous economy, popu-lated solely by this agent and calculate the ”homogeneous” price of an asset...