Kasper Larsen, Rutgers University

Resolving asset pricing puzzles with price impact
Date
Nov 20, 2019, 4:30 pm5:30 pm
Location
101 - Sherrerd Hall
Event Description

We solve in closed-form a Nash equilibrium model in which a finite number of exponential investors trade continuously with price-impact over a finite time horizon. By comparing our continuous-time Nash equilibrium model to the otherwise identical competitive Radner equilibrium model, we show that our Nash equilibrium model with price-impact can simultaneously help resolve the interest rate puzzle, the equity premium puzzle, and the stock volatility puzzle. Joint work with Xiao Chen, Jin Hyuk Choi, and Duane J. Seppi.