Article ID Journal Published Year Pages File Type
5070016 Finance Research Letters 2006 6 Pages PDF
Abstract

In a recent paper, Judd et al. [2003. Journal of Finance 58, 2203-2217] study asset trading in a version of the standard Lucas infinite horizon economy with heterogeneous agents. They report the surprising finding that (for generic economies in their class), in equilibrium, there is no trade in (long-lived) assets after the initial date. This note points out that the conclusions of Judd et al. [2003. Journal of Finance 58, 2203-2217] are artifacts of the assumption that asset dividends and individual endowments follow the same stationary finite state Markov process. Without this assumption-and even if asset dividends and aggregate endowments follow the same stationary process-there will necessarily be trade at many histories.

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Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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