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A Demand System Approach to Asset Pricing

Ralph Koijen and Motohiro Yogo

No 21749, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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)
Date: 2015-11
New Economics Papers: this item is included in nep-ifn
Note: AP IO
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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) Downloads
Working Paper: A Demand System Approach to Asset Pricing (2018) Downloads
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