An Equilibrium Model of Institutional Demand and Asset Prices

Download or read book An Equilibrium Model of Institutional Demand and Asset Prices written by Ralph S. J. Koijen and published by . This book was released on 2015 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop an asset pricing model with rich heterogeneity in asset demand across investors, designed to match institutional holdings. The equilibrium price vector is uniquely determined by market clearing for each asset. We relate our model to traditional frameworks including Euler equations, mean-variance portfolio choice, factor models, and Fama-MacBeth regressions. Because the asset demand system cannot be estimated consistently by least squares in the presence of price impact, we propose two identification strategies, based on a coefficient restriction or instrumental variables. We apply our model to understand the role of institutions in stock market movements, liquidity, volatility, and predictability.