Research output: Working paper
Research output: Working paper
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TY - UNPB
T1 - Necessary and sufficient conditions on Gorman aggregation in securities markets with heterogeneous beliefs
AU - Huang, James
AU - Adam-Mueller, Axel
PY - 2012
Y1 - 2012
N2 - 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.
AB - 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.
KW - Gorman aggregation
KW - demand for securities
KW - contingent-claim pricing
KW - heterogeneous beliefs
M3 - Working paper
BT - Necessary and sufficient conditions on Gorman aggregation in securities markets with heterogeneous beliefs
PB - Lancaster University
CY - Lancaster
ER -