Solving heterogeneous-belief asset pricing models with short selling constraints and many agents

Abstract

Short-selling constraints are common in financial markets, while physical assets such as housing often lack markets for short-selling altogether. As a result, investment decisions are often restricted by such constraints. This paper studies asset prices in behavioural heterogeneous-belief models with short-selling constraints. We provide expressions for price and demands in a market with arbitrarily many belief types, plus efficient solution algorithms, relevant for a wide range of models. Extensions include conditional short-selling constraints, multiple asset markets, and a market maker. An application studies how an alternative uptick rule, as in the United States, affects price and wealth distribution in a market with many belief types in evolutionary competition.

More information

Identifiers

ORCID for Michael Hatcher: orcid.org/0000-0001-8506-1950

Catalogue record

Export record