Life-Cycle Portfolio Choice, the Wealth Distribution and Asset Prices

Felix Kubler and Karl Schmedders

No 10-21, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: In this paper we consider a canonical stochastic overlapping generations economy with sequentially complete markets. We examine how aggregate and individual shocks translate to changes in the distribution of wealth and how these movements in the wealth distribution affect asset prices and the interest rate. We show that effects are generally small if agents have identical beliefs but that differences in opinion lead to large movements in the wealth distribution. The interplay of belief heterogeneity and life-cycle savings motives creates very large movements of asset prices and can poten- tially generate realistic moments of asset returns.

Keywords: OLG economy; heterogeneous beliefs; life-cycle portfolio choice; wealth distribution; market volatility (search for similar items in EconPapers)
JEL-codes: D53 E21 G11 G12 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2010-05
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Life-Cycle Portfolio Choice, the Wealth Distribution and Asset Prices (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1021

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