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The Dynamics of Random Asset Prices in the Generalized CAPM: Some Recent Results

Speaker: Volker Böhm, Bielefeld University, Germany

Abstract: Recent results of the theory of endogenous asset pricing of the generalized CAPM reveal that some of the traditional concepts and results of the two period model with homogeneous consumers have natural extensions to situations when they are heterogeneous with respect to their preferences, their beliefs, and their behavior. In addition, heterogeneity induces additional dynamic and stochastic features not present in the standard model. Results are given for arbitrary preferences and beliefs and their impact on asset demand, existence and multiplicity of equilibria in economies of overlapping cohorts of consumers. Extensions of the concepts of an efficient market portfolio under heterogeneous forecasting are given. With arbitrary multi-period planning horizons separation properties of asset demand are derived and an extension of a generalized fund separation theorem can be deduced under rational expectations. Finally, the role of different forecasting rules is investigated. In such cases switching behavior or bounded rationality often leads to non-ergodic asset prices.

14 March 2007
City - Haymarket CB05D School of Finance & Economics Seminar Room Level 3 Room 3.01
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