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Asset Trading Volume with Dynamically Complete Markets and Heterogeneous Agents
Author(s) -
Judd Kenneth L.,
Kubler Felix,
Schmedders Karl
Publication year - 2003
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/1540-6261.00602
Subject(s) - equity (law) , portfolio , asset (computer security) , volume (thermodynamics) , financial economics , economics , asset allocation , algorithmic trading , business , computer science , physics , computer security , quantum mechanics , political science , law
Trading volume of infinitely lived securities, such as equity, is generically zero in Lucas asset pricing models with heterogeneous agents. More generally, the end‐of‐period portfolio of all securities is constant over time and states in the generic economy. General equilibrium restrictions rule out trading of equity after an initial period. This result contrasts the prediction of portfolio allocation analyses that portfolio rebalancing motives produce nontrivial trade volume. Therefore, other causes of trade must be present in asset markets with large trading volume.