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Research Seminars & Workshops @ IRES


Dr Qian Wenlan
NUS Business School, National University of Singapore

Heterogenous Agents, Time-varying Macro.
Fundamental and Asset Market Dynamics


Date:

14 January 2008

Time:

3.00 pm

Venue:

IRES Seminar Room, SDE1 #04-24


Abstract

This paper proposes a new channel to explain the positive price-volume correlation in the housing market. I study a simple overlapping generations model in the presence of heterogeneous agents. In the model, (i) consumer investors are forward looking and heterogeneous both in their holding periods and in their ownership preference, (ii) the underlying time varying macro fundamental is persistent, (iii) there are no transaction costs/frictions, and (iv) an auction is the micro-mechanism for price formation. In equilibrium, short horizon buyers are more likely to win the asset when prices are high whereas long horizon buyers on average win more when prices are low. This state-dependent ownership structure then naturally leads to a higher expected turnover rate in good times given a (positively) persistent macro dynamics. Empirically I document novel ndings that are consistent with my model's asset pricing implications. Owners' ex ante holding horizons co-vary neg- atively with asset prices. Owners' expected durations also have predictive power on future returns, particularly the return component that is forecastable by macro conditions.

For full paper, download herehttp://www.rst.nus.edu.sg/research/images/pdf1.GIF

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