The Equilibrium Distributions of Value for Risky Stocks and Bonds

April 1, 2001

Preview Citation

Format: Chicago

Ronald Johannes. The Equilibrium Distributions of Value for Risky Stocks and Bonds, (USA: International Monetary Fund, 2001) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Within a unified theory for stocks and corporate bonds, based on dynamic optimization by investors, this paper derives analytical expressions for the momentary distributions of expected price, respectively known to approximate lognormal with systematic deviations (high peak, fat tail) and double exponential (for credit risk). Market equilibrium is regarded as a dynamic equilibrium characterized by a time-invariant probability distribution over microfinancial states, marginal redistributions of portfolios are regarded as indistinguishable, and real and fiat assets are regarded as essentially distinct. The formalism provides a basis for decomposing value changes by market fundamentals, investor sentiment, and investor acquisition of securities.

Subject: Asset prices, Bonds, Current account, Securities markets, Stocks

Keywords: Mover accent, WP

Publication Details

Pages:

35
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2001/039
Stock No:

WPIEA0392001
ISBN:

9781451845839
ISSN:

1018-5941

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