Limited market participation and volatility of asset prices
Franklin Allen, Douglas Gale, London School of Economics and Political Science. Financial Markets Group
London School of Economics, 1993 - Business & Economics - 64 pages
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amount of cash Arg Max asset market asset prices asset returns asset-price volatility assume Assumption Blume cash held cash is dominated choose concave function contradicting Property Corbae cost of entering cost of participating demand denote early consumers enter the asset enter the market entry cost equilibrium price excess volatility expected utility expected value fixed cost full-participation equilibrium held at date hold cash illiquid implies income effects inequality investors enter investors of type investors strictly prefer late consumers limited market participation limited number limited participation limited-participation equilibrium liquid asset liquidity preference liquidity shock liquidity trading long market market at date market-clearing multiple equilibria non-stochastic number of investors parameter values Pareto-ranked partial equilibrium participation decisions portfolio choice price function P(9 pricing equation Proof of Proposition proportion of early second date Shiller short asset stocks sufficiently small type-A investors type-B investors strictly types of investors unit of cash zero