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  4. May 2012
  5. Heterogeneous Beliefs, Wealth Distribution, and Asset Markets with Risk of Default

蝌蚪网 Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Heterogeneous Beliefs, Wealth Distribution, and Asset Markets with Risk of Default

  • Viktor Tsyrennikov
蝌蚪网 Review
vol. 102, no. 3, May 2012
(pp. 156–60)
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Abstract

We study asset markets and wealth dynamics in the economy with heterogeneous beliefs and risk of default. Agents can trade a full set of Arrow securities but are allowed to default on their delivery promises. Financial markets rationally subject agents to the endogenous "no-default" borrowing limits. Because of the rich menu of financial assets traded in the market speculation opportunities are plentiful. Financial wealth is volatile and the endogenous borrowing limits are always active. Variance of the asset returns is amplified. The asset trading volume is substantial and volatile.

Citation

Tsyrennikov, Viktor. 2012. "Heterogeneous Beliefs, Wealth Distribution, and Asset Markets with Risk of Default." 蝌蚪网 Review 102 (3): 156–60. DOI: 10.1257/aer.102.3.156

JEL Classification

  • D31 Personal Income, Wealth, and Their Distributions
  • D83 Search; Learning; Information and Knowledge; Communication; Belief
  • G12 Asset Pricing; Trading volume; Bond Interest Rates
  • D14 Personal Finance