Non-diversified portfolios and non-price-taking behavior: An exploratory investigation of a potential connection.

摘要

The price-taking assumption is pervasive in the asset-pricing field of research. While the assumption is reasonable for small investors it is not for major investors or central planners.; The endowment and expenditure parts of budget constraints depend upon asset prices. Thus major players have a perceived need to assess the impact of their decisions on market outcomes. I develop a flexible simple framework for non-price-taking behavioral dynamics, that allows for mutual non-price-taking behavior, and show that the model developed can provide a partial explanation for the “home bias” phenomenon. It is argued that the distinction between integration and segmentation needs to be based on a spectrum of risk measures not limited to those of the price-taking framework. A numerical simulation gives some indication that symmetrical non-price-taking behavior leads to Pareto-inefficient outcomes, similar to many game-theory models. The relation between an economic agent's absolute risk-aversion and payoffs' distribution parameters in the non-price-taking framework is different from the relation in the price-taking framework. The extent of this difference is characterized by a factor π for which estimates are derived using both actual data and numerical simulation. The results of an exploratory empirical research program gives some preliminary credible support for the argument that non-price-taking behavior exists in financial markets.