A Demand System Approach to Asset Pricing
Ralph Koijen and
No 21749, NBER Working Papers from National Bureau of Economic Research, Inc
We develop an asset pricing model with flexible heterogeneity in asset demand across investors, designed to match institutional and household holdings. A portfolio choice model implies characteristics-based demand when returns have a factor structure and expected returns and factor loadings depend on the assets’ own characteristics. We propose an instrumental variables estimator for the characteristics-based demand system to address the endogeneity of demand and asset prices. Using US stock market data, we illustrate how the model could be used to understand the role of institutions in asset market movements, volatility, and predictability.
JEL-codes: G12 G23 (search for similar items in EconPapers)
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Published as Ralph S. J. Koijen & Motohiro Yogo, 2019. "A Demand System Approach to Asset Pricing," Journal of Political Economy, vol 127(4), pages 1475-1515.
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Journal Article: A Demand System Approach to Asset Pricing (2019)
Working Paper: A Demand System Approach to Asset Pricing (2018)
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