"Overreaction" of Asset Prices in General Equilibrium
S. Aiyagari and
Mark Gertler ()
Working Papers from C.V. Starr Center for Applied Economics, New York University
We attempt to explain the overreaction of asset prices to movements in short-term interest rates, dividends, and asset supplies. The key element of our explanation is a margin constraint that traders face which limits their leverage to a fraction of the value of their assets. Traders may lever themselves, further, either directly by borrowing short term or indirectly by engaging in futures and option trading, so that the scenario is relevant to contemporary financial markets.
Keywords: PRICING; GENERAL EQUILIBRIUM; FINANCIAL ASSETS (search for similar items in EconPapers)
JEL-codes: E0 G1 (search for similar items in EconPapers)
Pages: 39 pages
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Journal Article: "Overreaction" of Asset Prices in General Equilibrium (1999)
Working Paper: "Overreaction" of Asset Prices in General Equilibrium (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:cvs:starer:98-25
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