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dc.contributor.authorSchmedders, Karlen_US
dc.date.accessioned2010-05-14T10:19:19Z-
dc.date.available2010-05-14T10:19:19Z-
dc.date.issued2004en_US
dc.identifier.urihttp://hdl.handle.net/10419/31251-
dc.description.abstractThis paper examines the two-fund separation paradigm in the context of an infinite-horizon general equilibrium model with dynamically complete markets and heterogeneous consumers with time- and state-separable utility functions. With the exception of the dynamic structure, we maintain the assumptions of the classical static models that exhibit two-fund separation with a riskless security. Agents have equi-cautious HARA utility functions. In addition to a security with state-independent payoffs, agents can trade a collection of assets with dividends following a time-homogeneousMarkov process. We make no further assumptions about the distribution of asset dividends, returns, or prices. If the riskless security in the economy is a consol then agents’ portfolios exhibit two-fund separation. However, if agents can trade only a one-period bond, this result no longer holds. The underlying intuition is that general equilibrium restrictions lead to interest rate fluctuations that destroy the optimality of two-fund separation in economies with a one-period bond and result in different equilibrium portfolios.en_US
dc.language.isoengen_US
dc.publisherNorthwestern Univ., Kellogg Graduate School of Management, Center for Mathematical Studies in Economics and Management Science Evanstonen_US
dc.relation.ispartofseriesDiscussion paper // Center for Mathematical Studies in Economics and Management Science 1398en_US
dc.subject.jelD53en_US
dc.subject.jelG11en_US
dc.subject.jelG12en_US
dc.subject.ddc330en_US
dc.subject.keywordPortfolio separationen_US
dc.subject.keyworddynamically complete marketsen_US
dc.subject.keywordconsolen_US
dc.subject.keywordoneperiod bonden_US
dc.subject.keywordinterest rate fluctuationen_US
dc.subject.keywordreinvestment risken_US
dc.titleTwo-fund separation in dynamic general equilibriumen_US
dc.typeWorking Paperen_US
dc.identifier.ppn586189106en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungen-
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