Equilibrium Asset Pricing and Portfolio Choice with Heterogeneous Preferences
نویسندگان
چکیده
We provide general representations for the rate of return and the volatility of a risky asset and for the optimal portfolios in equilibrium with heterogeneous agents. Our universal representations allow for arbitrary utility functions and an arbitrary diffusion process for the state variable. The key element is a new object that we call the “rate of macroeconomic fluctuations”: In equilibrium, pricing of all macroeconomic risks requires discounting them at this rate. We use the obtained representations to establish quantitative and qualitative properties of equilibrium dynamics and to generate a number of empirical predictions.
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