Complex Asset Markets / Andrea L. Eisfeldt, Hanno Lustig, Lei Zhang.

Format:

Book

Author/Creator:

Eisfeldt, Andrea L.

Contributor:

National Bureau of Economic Research.

Lustig, Hanno.

Zhang, Lei.

Series:

Working Paper Series (National Bureau of Economic Research) no. w23476.

NBER working paper series no. w23476

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2017.

Summary:

We develop a dynamic equilibrium model of complex asset markets with endogenous entry and exit in which the investment technology of investors with more expertise is subject to less asset-specific risk. The joint equilibrium distribution of financial expertise and wealth then determines risk bearing capacity. Higher expert demand lowers equilibrium required returns, reducing overall participation. In equilibrium, investor participation in more complex asset markets with more asset-specific risk is lower, despite higher market- level Sharpe ratios, provided that asset complexity and expertise are complementary. We analyze how asset complexity affects the stationary wealth distribution of complex asset investors. Because of selection, increased asset complexity reduces wealth concentration, even though the wealth distribution for more expert investors has fatter tails.

Notes:

Print version record

June 2017.