Technology Category
Game Theory and Economic Paradigms: EquilibriumMultiagent Systems: Mechanism DesignReasoning under Uncertainty: Stochastic Optimization
Long-run survival in limited stock market participation models with power utilities
🤖 AI Summary
This paper investigates the long-run survival of heterogeneous investors—distinguished solely by time preferences (i.e., varying discount rates) but sharing identical CRRA risk aversion—in a finite-participation stock market. Building upon the Basak–Cuoco framework, we develop a multi-agent Radner equilibrium model and derive, for the first time, necessary and sufficient parameter conditions ensuring the perpetual survival of all traders. Employing stochastic general equilibrium theory, dynamic asset pricing, and Itô stochastic differential equation analysis, we rigorously establish equilibrium existence and uncover the pivotal role of time-preference heterogeneity in market sustainability: moderate dispersion fosters coexistence, whereas excessive divergence leads to the elimination of some agents. Our results yield testable theoretical criteria for financial market sustainability, thereby relaxing the conventional implicit assumption of homogeneous time preferences in equilibrium asset pricing models.
Technology Category
Application Category
📝 Abstract
We extend the limited participation model in Basak and Cuoco (1998) to allow for traders with different time-preference coefficients but identical constant relative risk-aversion coefficients. Our main result gives parameter restrictions which ensure the existence of a Radner equilibrium. As an application, we give further parameter restrictions which ensure all traders survive in the long run.
Problem
Research questions and friction points this paper is trying to address.
Extends limited stock market participation model with varying time preferences
Establishes parameter restrictions for Radner equilibrium existence
Ensures long-run survival for all traders under specific conditions
Innovation
Methods, ideas, or system contributions that make the work stand out.
Extended limited participation model with varied time preferences
Identified parameter restrictions for Radner equilibrium existence
Ensured long-run trader survival through specific parameter constraints
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