We develop a framework to theoretically and empirically analyze the flfluctuations of the aggregate stock market. Households allocate capital to institutions, which are fairly constrained, for example operating with a mandate to maintain a fifixed equity share or with moderate scope for variation. As a result, the price elasticity of demand of the aggregate stock market is small, so flflows in and out of the stock market have large impacts on prices. Using the recent method of granular instrumental variables, we fifind that investing $1 in the stock market increases the market’s aggregate value by about $5. We also show that we can trace back the time variation in the market’s volatility to flflows and demand shocks of difffferent investors. We also analyze how key parts of macro-fifinance change if markets are inelastic. We show how pricing kernels and general equilibrium models can be generalized to incorporate flflows, which makes them amenable to use in more realistic macroeconomic models, and to policy analysis. Government purchases of equities have a large impact on prices. Corporate actions that would be neutral in a rational model, such as share buybacks, have large impacts too. Our framework allows us to give a dynamic economic structure to old and recent datasets comprising holdings and flflows in various segments of the market. The mystery of apparently random movements of the stock market, hard to link to fundamentals, is replaced by the more manageable problem of understanding the determinants of flflows in inelastic markets. We delineate a research agenda that can explore a number of questions raised by this analysis, and might lead to a more concrete understanding of the origins of fifinancial flfluctuations across markets.
原文链接：
http://conference.nber.org/conf_papers/f141240.pdf
