Upcoming Webinars
Demand-System Asset Pricing: Theoretical Foundations
By William Fuchs, Satosshi Fukuda, and Daniel Nuehann
March 7, 2023
Seminar: 12:00 pm - 1:00 pm EDT
Virtual Coffee Break: 1:00 pm - 1:30 pm EDT
Presented by William Fuchs
Abstract: Recent approaches to asset pricing involve the estimation of demand systems for financial securities in which investors are permitted to have non-pecuniary tastes over cash flow-irrelevant asset characteristics. We investigate theoretical foundations of demand-system asset pricing using multiple approaches to integrating tastes with portfolio choice. Our analysis raises several conceptual issues, including the definition of no arbitrage, the pricing of “redundant” assets, and the cardinal interpretation of taste parameters. These issues imply multiple barriers to identifying demand systems for financial securities from observational data, and raise questions about the structural interpretation of financial demand elasticities. We discuss how these issues affect counterfactuals constructed from estimated demand systems.