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Necessary and sufficient conditions on Gorman aggregation in securities markets with heterogeneous beliefs

Research output: Working paper

Published
Publication date2012
Place of PublicationLancaster
PublisherLancaster University
Number of pages11
<mark>Original language</mark>English

Abstract

Given a group of agents who have divergent beliefs and heterogeneous preferences, we derive a necessary and sufficient condition for the group's aggregate demand for securities to be independent of initial wealth distributions. We also present a necessary and sufficient condition for asset prices to be independent of initial wealth distributions in an economy with heterogeneous beliefs. Contrary to the common belief in the literature, equicautious HARA utility functions are not necessary for Gorman aggregation in securities markets.