Sorting in risk-aversion and asset price volatility

I analyze how an exogenous cost of entry in a risky asset market affects two endogenous variables: the degree of market participation and price volatility. I show that different entry costs generate different participation equilibria and that a multiplicity of equilibria may arise, but that the new market entrants are always more risk-averse than the rest of the participants. Every participation equilibrium is associated with a volatility of the asset price. Increased market participation leads to increased asset price volatility and higher welfare.