This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. Journals
  3. American Economic Review
  4. May 2012
  5. Heterogeneous Beliefs, Wealth Distribution, and Asset Markets with Risk of Default

American Economic Review

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

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

  • Viktor Tsyrennikov
American Economic Review
vol. 102, no. 3, May 2012
(pp. 156–60)
Download Full Text PDF

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." American Economic 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