Previous Page  |  Table of Contents  |  Next Page

Valery Polkovnichenko, Principal Investigator

Stockholdings and Asset Prices in an Economy with Heterogem Agents

Conventional macroeconomic models use a simplistic approach to modeling of individual consumers. A typical assumptions of homogeneous agents and complete markets allow for simple aggregation. While this representative agent approach is convenient, it is well known that implications of such modeling, with regard to the asset holdings distribution and asset prices, is at odds with empirical evidence. In recent years, a great deal of research has been done on the impact of the heterogeneity and market incompleteness on asset prices. This research contributes to this by concentrating more on portfolio choice aspects of the agent's heterogeneity. At the current stage, interest is in the implications of heterogeneity for the stock holdings. In particular, work is being done on explaining a puzzling phenomena of the limited stock market participation. Factors are considered such as risk aversion and stochastic labor income that may explain heterogeneity of stock holdings. Currently, a general equilibrium asset pricing model is being worked on to address three main issues-to endogenize the concentration of stock holdings in the absence of any frictions, to explain limited participation under reasonable assumptions about participation cost, and to evaluate the effect of limited stock market participation on asset prices. There is also a number of potentially interesting extensions of the line of research being pursued. More general applications of the models with heterogeneous agents would be very useful for studying questions such as the sources of the wealth heterogeneity and accumulation, the effects of the proposed social security reform (in particular, the inclusion of stocks into a social security fund portfolio) on the direct cohorts of the population, and the asset pricing consequences of the more accessible financial markets.

This information is available in alternative formats upon request by individuals with disabilities. Please send email to alt-format@msi.umn.edu or call 612-624-0528.

HOME | QUESTIONS | FEEDBACK
Employment | Events | Links | People | Programs | Publications | Support | Welcome