Expectation-driven asset price fluctuations under the spirit of capitalism hypothesis: The role of heterogeneity

Lise Clain-Chamosset-Yvrard

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Abstract: In this paper, I study how heterogeneity amongst agents affects the occurrence of expectation-driven asset price fluctuations in a pure exchange economy à la Lucas, with infinitely-lived households, under the hypothesis of spirit of capitalism. I consider heterogeneous households in terms of preferences, endowments and initial wealth, and capture the spirit of capitalism through preferences for wealth. Preferences for wealth are the key element of this paper in a twofold aspect. First, they explain the occurrence of asset price fluctuations driven by self-fulfilling changes in expectations. Second, heterogeneity in endowments affects asset price level and dynamics only if preferences are heterogeneous. For instance, if agents with the strongest spirit of capitalism are also the rich in terms of endowments, heterogeneity in endowments heightens the asset price level in the long run, and destabilizes by enlarging the range of parameter values for which expectation-driven asset price fluctuations occur.

Keywords: Asset pricing model; Spirit of Capitalism; Heterogeneity; Expectation-driven fluctuations (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-upt
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01719844v1
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Related works:
Journal Article: EXPECTATION-DRIVEN ASSET PRICE FLUCTUATIONS UNDER THE SPIRIT OF CAPITALISM HYPOTHESIS: THE ROLE OF HETEROGENEITY (2021)
Working Paper: Expectation-driven asset price fluctuations under the spirit of capitalism hypothesis: The role of heterogeneity (2021)
Working Paper: Expectation-driven asset price fluctuations under the spirit of capitalism hypothesis: The role of heterogeneity (2018)
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