We develop an asset pricing model with rich heterogeneity in asset demand across investors, designed to match institutional holdings. The equilibrium price vector is uniquely determined by market clearing for each asset. We relate our model to traditional frameworks including Euler equations, mean-variance portfolio choice, factor models, and cross-sectional regressions on characteristics. We propose two identification strategies for the asset demand system, based on a coefficient restriction or instrumental variables, which produce similar estimates that are different from the least squares estimates. We apply our model to understand the role of institutions in stock market movements, liquidity, volatility, and predictability.

More Research From These Scholars

BFI Working Paper Jun 17, 2019

Which Investors Matter for Global Equity Valuations and Expected Returns?

Ralph Koijen, Robert J. Richmond, Motohiro Yogo
Topics:  Financial Markets
BFI Working Paper Mar 1, 2012

Equity Yields

Jules H. van Binsbergen, Evert B. Vrugt, Ralph Koijen, Wouter H. Hueskes
BFI Working Paper Oct 1, 2010

On the Timing and Pricing of Dividends

Ralph Koijen, Jules van Binsbergen, Michael Brandt