Asset Trading Volume with Dynamically Complete Markets and Heterogeneous Agents

Kenneth L. Judd, Felix Kubler, Karl H Schmedders

Research output: Contribution to journalArticlepeer-review

26 Scopus citations

Abstract

Trading volume of infinitely lived securities, such as equity, is generically zero in Lucas asset pricing models with heterogeneous agents. More generally, the end-of-period portfolio of all securities is constant over time and states in the generic economy. General equilibrium restrictions rule out trading of equity after an initial period. This result contrasts the prediction of portfolio allocation analyses that portfolio rebalancing motives produce nontrivial trade volume. Therefore, other causes of trade must be present in asset markets with large trading volume.

Original languageEnglish (US)
Pages (from-to)2203-2218
Number of pages16
JournalJournal of Finance
Volume58
Issue number5
DOIs
StatePublished - Oct 2003

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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