Endogenous Stock Price Fluctuations with Dynamic Self-Control Preferences

Marco Airaudo ()

No 2016-2, School of Economics Working Paper Series from LeBow College of Business, Drexel University

Abstract: This paper studies the global equilibrium dynamics implied by a Lucas’ tree asset pricing model where the representative agent has dynamic self-control preferences, as defined by Gul and Pesendorfer (Econometrica, 2004). It shows that endogenous cycles of period 2 and higher, as well as chaotic dynamics exist provided temptation utility is sufficiently important (with respect to standard commitment utility) and sufficiently convex. For parameterizations leading to complex deterministic dynamics, the model also admits stationary and non-stationary sunspot equilibria.

Keywords: Asset Pricing; Temptation; Self-Control; Endogenous Cycles; Chaotic Dynamics; Sunspot Equilibrium (search for similar items in EconPapers)
JEL-codes: C62 E32 G12 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2016-01-21
New Economics Papers: this item is included in nep-dge, nep-mac, nep-mic and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:drxlwp:2016_002

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