Resolving asset pricing puzzles using price-impact
Jin Hyuk Choi,
Kasper Larsen and
Duane J. Seppi
Papers from arXiv.org
We solve in closed-form an equilibrium model in which a finite number of exponential investors continuously consume and trade with price-impact. Compared to the analogous Pareto-efficient equilibrium model, price-impact has an amplification effect on risk-sharing distortions that helps resolve the interest rate puzzle and the stock-price volatility puzzle and, to a lesser extent, affects the equity premium puzzle.
Date: 2019-10, Revised 2020-06
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1910.02466
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