We study how trading costs are reflected in equilibrium returns. To this end, we develop a tractable continuous-time risk-sharing model, where heterogeneous mean-variance investors trade subject to a quadratic transaction cost. The corresponding equilibrium is characterized as the unique...

The standard generalized method of moments (GMM) estimation of Euler equations in heterogeneous-agent consumption-based asset pricing models is inconsistent under fat tails because the GMM criterion is asymptotically random. To illustrate this, we generate asset returns and consumption data from...

The effects of endogenous undiversifiable investment and market structure changes on security pricing are analyzed within the GEI-CAPM (General Equilibrium with Incomplete Markets Capital Asset Pricing Model). Both the mutual fund and security market line theorems are extended conditional to a...

This paper studies the effects of heterogeneity in planning propensity on wealth inequality and asset prices. I consider an economy populated by attentive and inattentive agents. Attentive agents plan their consumption period by period, while inattentive agents plan every other period....

Recent empirical evidence documents that different individuals earn systematically different rates of return, even after controlling for portfolio composition. We propose a general equilibrium theory of residual heterogeneity in rates of return on wealth by embedding a financial market with...

This paper studies the effects of heterogeneity in planning propensity on wealth inequality and asset prices. I consider an economy populated by "attentive" and "inattentive" agents. Attentive agents plan their consumption period by period, while inattentive agents plan every other period....

Typically, models of stock prices or returns assume homogeneity of risk preference parameters. This study shows modeling of IPO prices necessarily is with reference to the distribution of risk preference parameters that already are represented in secondary equity markets. Modeling of stock...

This paper investigates the effect of limited enforcement of contracts on asset returns in a three-period pure- exchange overlapping generations economy. We consider a life-cycle setting with a safe and a risky asset and find that lack of commitment can significantly affect the rate of returns...

This paper develops and applies a simple graphical approach to portfolio selection that accounts for covariance between asset returns and an investor's labor income. Our graphical approach easily handles income shocks that are partly hedgeable, multiple risky assets, multiple risky assets, many...