Asset pricing with heterogeneous agents and long-run risk

Pohl, Walter; Schmedders, Karl; Wilms, Ole

doi:10.1016/j.jfineco.2021.01.005

Cited by 19 publications

(3 citation statements)

References 39 publications

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“…While all of the above build on a single-agent economy, Pohl et al (2020) add a second agent to the model to establish trade. The agents disagree on the persistence of the long-run growth rate of consumption.…”

Section: Recursive Utility and Priced State Variablesmentioning

confidence: 99%

“…On the boundaries, with the wealth share being 0 and 1, the solution is replaced by the solution of an otherwise equal representative-agent economy. Pohl et al (2020) use a discrete-time framework and a full nonlinear solution. Branger et al (2016) use a continuoustime setup, featuring disagreement on jump intensities and a solution method inspired by Benzoni et al (2011) and outlined above.…”

Section: Recursive Utility and Priced State Variablesmentioning

confidence: 99%

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Computing Economic Equilibria Using Projection Methods

2020

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The analysis of dynamic economic models routinely leads to the mathematical problem of determining an unknown function for which no closed-form solution exists. Economists must then resort to methods of numerical approximation when analyzing such models. Among the computational methods that have been successfully applied in economics and finance, one set of techniques stands out due to its flexibility and robustness: projection methods. In this article, we describe the basic steps of these methods for several different applications, surveying many successful applications of projection methods to dynamic economic models. Importantly, we emphasize that the ever-increasing complexity and dimensionality of dynamic models have made the previously used simpler methods obsolete and the applications of projection methods all but mandatory. We closely examine the most recent endeavors in the literature on solving economic models with projection methods. Expected final online publication date for the Annual Review of Economics, Volume 12 is August 3, 2020. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

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Section: Recursive Utility and Priced State Variablesmentioning

confidence: 99%

Section: Recursive Utility and Priced State Variablesmentioning

confidence: 99%

Computing Economic Equilibria Using Projection Methods

2020

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show abstract

“…Numerous theoretical models and empirical evidences have discussed the effects of heterogeneous beliefs on asset pricing and corporate decisions. For instance, Gilchrist et al [10] analyzed the effect of stock price bubbles, which is caused by dispersion in investor beliefs and short-selling constraints, on corporate investment decisions; Smith [11] expounded the effect of lower and higher disagreement in financial markets on corporate investment; Buraschi et al [12] described the effect of heterogeneous perceptions of aggregate consumption growth on bond and stock returns; Baker et al [13] explained the speculation and aggregate investment under disagreement; Siganos et al [14] discussed stock trading with divergence of sentiment; Curatola [15] assessed the optimal portfolio choice and consumption-investment problem of heterogeneous loss averse investors; Borovička [16] found the interaction between risk sharing, speculative behavior and consumption-saving choice of agents with heterogeneous beliefs under recursive preferences; Pohl et al [17] proved that heterogeneous beliefs lead to time-varying consumption, which can help explain several asset pricing puzzles; [18][19][20][21][22][23] investigated corporate financing, capital structure, investment, acquisitions, dividend and managerial incentives under heterogeneous beliefs; etc.…”

Section: Introductionmentioning

confidence: 99%