Heterogeneous Beliefs, Wealth Distribution, and Asset Markets with Risk of Default | Zendy

Viktor Tsyrennikov | Zendy

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Heterogeneous Beliefs, Wealth Distribution, and Asset Markets with Risk of Default

Author(s) -

Viktor Tsyrennikov

Publication year - 2012

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.102.3.156

Subject(s) - speculation , economics , asset (computer security) , financial market , financial economics , financial asset , monetary economics , distribution (mathematics) , finance , mathematical analysis , computer security , mathematics , computer science

We study asset markets and wealth dynamics in the economy with heterogeneous beliefs and risk of default. Agents can trade a full set of Arrow securities but are allowed to default on their delivery promises. Financial markets rationally subject agents to the endogenous "no-default" borrowing limits. Because of the rich menu of financial assets traded in the market speculation opportunities are plentiful. Financial wealth is volatile and the endogenous borrowing limits are always active. Variance of the asset returns is amplified. The asset trading volume is substantial and volatile.

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