Financial Markets Equilibrium with Heterogeneous Agents

This paper presents an equilibrium model in a pure exchange econ- omy when investors have three possible sources of heterogeneity. In- vestors may di§er in their beliefs, in their level of risk aversion and in their time preference rate. We study the impact of investors hetero- geneity on the properties of the equilibrium. In particular, we analyze the consumption shares, the market price of risk, the risk free rate, the bond prices at di§erent maturities, the stock price and volatil- ity as well as the stockís cumulative returns, and optimal portfolio strategies. We relate the heterogeneous economy with the family of associated homogeneous economies with only one class of investors. We consider cross sectional as well as asymptotic properties