Dynamics of Asset Demands with Confidence Heterogeneity

Adrian Buss, Grigory Vilkov and Raman Uppal

No 16441, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: To understand the dynamics of investor asset demands, we develop a multiperiod general-equilibrium model driven by a single latent variable, differences in beliefs, resulting from heterogeneity in investors' confidence regarding the return dynamics of assets. Consistent with the data, investors' asset holdings are concentrated and display large and persistent heterogeneity in asset demands across investors. Moreover, demand curves are steeper than with homogeneous beliefs. The time-series and cross-sectional variation in assets' realized and expected returns, as well as their volatilities, are driven by the mean and dispersion of latent demand.

Keywords: Institutional asset demand; Asset-demand elasticity; Investors' expectations; Trend chasing; Predictability (search for similar items in EconPapers)
JEL-codes: D53 G11 G12 (search for similar items in EconPapers)
Date: 2021-08
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