Dynamic General Equilibrium and T-Period Fund Separation

Anke Gerber (), Thorsten Hens () and Peter Woehrmann ()
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Anke Gerber: Institute for Empirical Research in Economics, University of Zurich, Postal: Institute for Empirical Research in Economics, University of Zurich, Plattenstr. 32 , CH-8032 Zurich, Switzerland, http://www.iew.unizh.ch/home/gerber/home.html
Thorsten Hens: Institute for Empirical Research in Economics, University of Zurich, Postal: Institute for Empirical Research in Economics, University of Zurich, Blümlisalpstrasse 10, CH-8006 Zürich, Switzerland, http://www.iew.unizh.ch/grp/hens/
Peter Woehrmann: Institute for Empirical Research in Economics, University of Zurich, Postal: Institute for Empirical Research in Economics, University of Zurich, Plattenstr. 32 , CH-8032 Zurich, Switzerland

No 2005/16, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: We consider a dynamic general equilibrium model with incomplete markets in which we derive conditions for separating the savings decision from the asset allocation decision. It is shown that with logarithmic utility functions this separation holds for any heterogeneity of discount factors while the generalization to constant relative risk aversion only holds for homogeneous discount factors. Our results have simple asset pricing implications for the time series and also the cross section of asset prices. It is found that on data from the DJIA a risk aversion weaker than in the logarithmic case fits best.

Keywords: Dynamic general equilibrium model; asset pricing (search for similar items in EconPapers)
JEL-codes: D50 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2005-12-22
New Economics Papers: this item is included in nep-dge and nep-upt
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