Asset Pricing with Heterogeneous Preferences, Beliefs, and Portfolio Constraints

Download or read book Asset Pricing with Heterogeneous Preferences, Beliefs, and Portfolio Constraints written by Georgy Chabakauri and published by . This book was released on 2015 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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 constraints and conditions under which these constraints help match certain empirical facts about asset prices. Under these conditions, borrowing and short-sale constraints decrease stock return volatilities, whereas limited stock market participation constraints amplify them. Moreover, borrowing constraints generate spikes in interest rates and volatilities and have stronger effects on asset prices than short-sale constraints.