A Demand System Approach to Asset Pricing
Open accessPublished version of a preprint
Abstract
We develop an asset pricing model with flexible heterogeneity in asset demand across investors, designed to match institutional and household holdings. A portfolio choice model implies characteristics-based demand when returns have a factor structure and expected returns and factor loadings depend on the assets’ own characteristics. We propose an instrumental variables estimator for the characteristics-based demand system to address the endogeneity of demand and asset prices. Using US stock market data, we illustrate how the model could be used to understand the role of institutions in asset market movements, volatility, and predictability.
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Institutional investors are less likely to turn away from sustainable investments during market turbulence and economic downturns compared to retail investors.
“All of this makes institutions less likely to turn away from sustainable investments during market turbulence and economic downturns, compared to retail investors.”
From Sustainability Preferences Under Stress: Evidence from COVID-19 (2020) · cites this paper as Koijen and Yogo (2019)
Many institutional investors are subject to investment mandates that limit the universe of stocks they are allowed to invest in and the extent their holdings vary over time.
“Most important is the fact that many institutional investors are subject to investment mandates that limit the universe of stocks they are allowed to invest in and the extent their holdings vary over time (see Koijen and Yogo (2019)).”
From Sustainability Preferences Under Stress: Evidence from COVID-19 (2020) · cites this paper as Koijen and Yogo (2019)
Cites
Common risk factors in the returns on stocks and bonds
Fama, E. F., & French, K. R. (1993) · Journal of Financial Economics · doi:10.1016/0304-405x(93)90023-5 · Cited by 25,754 · see citing works
CAPITAL ASSET PRICES: A THEORY OF MARKET EQUILIBRIUM UNDER CONDITIONS OF RISK*
Sharpe, W. F. (1964) · The Journal of Finance · doi:10.1111/j.1540-6261.1964.tb02865.x · Cited by 19,441 · see citing works
A five-factor asset pricing model
Fama, E. F., & French, K. R. (2015) · Journal of Financial Economics · doi:10.1016/j.jfineco.2014.10.010 · Cited by 7,852 · see citing works
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A review on ESG investing: Investors' expectations, beliefs and perceptions
Kräussl, R., Oladiran, T., & Stefanova, D. (2024) · Journal of Economic Surveys · doi:10.1111/joes.12599 · Cited by 175 · see citing works
Sustainability Preferences Under Stress: Evidence from COVID-19
Döttling, R., & Kim, S. (2020) · SSRN Working Paper · doi:10.2139/ssrn.3656756 · Cited by 161 · see citing works
Index providers: Whales behind the scenes of ETFs
An, Y., Benetton, M., & Song, Y. (2023) · Journal of Financial Economics · doi:10.1016/j.jfineco.2023.06.003 · Cited by 24 · see citing works
- Authors
- Koijen, R. S. J., & Yogo, M.
- Affiliations
- National Bureau of Economic Research (US)
- ORCID
- Yogo, Motohiro
- Venue
- Journal of Political Economy
- Publisher
- University of Chicago Press
- Published
- 2019-08
- Volume
- 127
- Issue
- 4
- Pages
- 1475-1515
- ISSN
- 0022-3808 (ISSN-L)
- 1537-534X
- OpenAlex
- W3023486457
- Cited by
- 688
- References
- 3
- Citations by year
- 2026: 95 · 2025: 119 · 2024: 104 · 2023: 99 · 2022: 99 · 2021: 70 · 2020: 54 · 2019: 24 · 2018: 10 · 2017: 7 · 2016: 5 · 2014: 1 · 2013: 1
- FWCI
- 52.20
- Type
- journal article
- Language
- en
- Open access
- green
- doi.org
- Licence
- cc-by-nc
- Locations
- Journal of Political Economy (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Funders
- University of Chicago
- Booth School of Business, University of Chicago
- Topics
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Risk and Volatility Modeling
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic theories and models
- Keywords
- asset pricing, demand systems, investor heterogeneity, portfolio optimization, factor models, institutional investors, household investors, stock market volatility, stock return predictability, instrumental variable estimation
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