This paper introduces endogenous preference evolution into a Lucas-type economy and explores its consequences for investors' trading strategy and the dynamics of asset prices. In equilibrium, investors herd and hold the same portfolio of risky assets which is biased toward stocks of sectors that...

We propose a 2-country asset-pricing model where agents' preferences change endogenously as a function of the popularity of internationally traded goods. We determine the effect of the time-variation of preferences on equity markets, consumption and portfolio choices. When agents are more...

We study the market price of risk, the stock volatility and the hedging behavior in equilibrium of heterogeneous agents with arbitrary utility functions, consuming only at the end of the time horizon, and with the state variable following an arbitrary homogeneous diffusion process. We introduce...

Portfolio constraints are widespread and have significant effects on asset prices. This paper studies the effects of constraints in a dynamic economy populated by investors with different risk aversions and beliefs about the rate of economic growth. The paper provides a comparison of various...