Speculation and Financial Wealth Distribution Under Belief Heterogeneity

• 成果类型: Article
• 署名作者: Cao, Dan
• 署名单位: Georgetown University
• 刊物名称: ECONOMIC JOURNAL
• ISSN/ISSBN: 0013-0133
• DOI: 10.1111/ecoj.12519
• 发表日期: 2018
• 页码: 2258-2281
• 关键词: markets; RISK; equilibrium; constraints; selection; BEHAVIOR; default; cycles; MODEL

摘要

Under limited commitment that prevents agents from pledging their future non-financial wealth, agents with incorrect beliefs always survive by holding on to their non-financial wealth. Friedman's () market selection hypothesis suggests that their financial wealth trends towards zero in the long run. However, I present a dynamic general equilibrium model with incomplete markets due to collateral constraints and show that the hypothesis depends on the degree of market incompleteness. When markets are more incomplete, over-optimistic agents not only survive but also prosper by speculation. Stricter margin requirements protect the wealth of the optimists and thereby increase asset price volatility.