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...

his paper studies the effects of financial integration on macroeconomic volatility and welfare. We examine a two-sector (tradable and nontradable), two-country world economy with production in which both stocks and bonds are traded internationally, but markets are incomplete. The effects of...

This paper presents a new numerical method for solving stochastic general equilibrium models with dynamic portfolio choice over many financial assets. The method can be applied to models where there are heterogeneous agents, time-varying investment opportunity sets, and incomplete asset markets....

A novel method to analyze the impact of transaction costs on a dynamically optimized portfolio is developed. Transaction costs, when taken into account in an incomplete market, generate a liquidity premium which is large enough to address important economic questions, such as the size of the...

In an incomplete market we study the optimal consumption-portfolio decision of an investor with recursive preferences of Epstein-Zin type. Applying a classical dynamic programming approach, we formulate the associated Hamilton-Jacobi-Bellman equation and provide a suitable verification theorem....

Hart proved the difficulty of deriving general comparative statics in portfolio weights. Instead, we derive new comparative statics for the distribution of payoffs: A is less risk averse than B iff A's payoff is always distributed as B's payoff plus a non-negative random variable plus...

We analytically solve the portfolio choice problem in the presence of wash sale constraints in a two-period model. Wash sale constraints induce a trade-off between realizing losses immediately in order to benefit from tax rebate payments and the ability to choose a portfolio composition in...

In this paper, I compare the accuracy of the two existing methods for solving stochastic general equilibrium models with dynamic portfolio choice and incomplete markets: one proposed by Hnatkovska (2010) and Evans and Hnatkovska (2005, 2011) (EH), another - attributed to Devereux and Sutherland...

Uniqueness of equilibrium is a relatively unexplored issue in incomplete markets compared with complete markets. This work shows that one-fund separation is sufficient for the uniqueness of equilibrium in a special class of incomplete markets with two agents and two assets. Specifically, it...