The article presents a historical review of the literature related to the empirical problem of excessive risk premium. The risk premium (the difference between the return on equities and risk-free rate) observed in financial markets cannot be reconciled with theoretical models of financial...

In this paper we analyze the effects of restricted participation in a two-period gen- eral equilibrium model with uncertainty in the second period and real assets. Similar to certain arrangements in the market for bank loans, household borrowing is restricted by a household-specific wealth...

The present note highlights the seminal contributions of Diamond, Drèze and Radner towards the integration of financial markets into general equilibrium modeling.

The article presents a historical review of the literature related to the empirical problem of excessive risk premium. The risk premium (the difference between the return on equities and risk-free rate) observed in financial markets cannot be reconciled with theoretical models of financial...

We consider a pure exchange, general equilibrium model, with two periods and a finite number of states, commodities, numeraire assets, and households. Participation in the asset markets is restricted in a household specific manner, imposing upper bounds on the amounts of borrowing which can be...

We consider a model with real assets and restricted participation described by household specific price dependent short selling constraints. We show existence of equilibria for all elements in an explicitly characterized large subset of the set of economies.

A dynamic pure-exchange general equilibrium model with uncertainty is studied. Fundamentals are supposed to depend continuously on states of nature. It is shown that: 1. if financial markets are complete, then asset prices vary continuously with states of nature, and; 2. if financial markets are...

If agents are ambiguity-averse and can invest in productive assets, asset prices can robustly exhibit indeterminacy in the markets that open after the productive investment has been launched. For indeterminacy to occur, the aggregate supply of goods must appear in precise configurations but the...

Through extending a standard Grossman and Stiglitz (1980) noisy rational expectations economy by a heterogeneous signal structure with signal-specific differences in uncertainty, we show that price momentum as well as reversal are not intrinsically at odds with rational behavior. Differences in...

Popular press and some practitioners have warned against threats that buying risky assets pose on agents saving for retirement, children education and other uses. This paper shows that in a standard two-period general equilibrium model where some savers have no risk-sharing motives, there exists...