Lei Zhang

Faculty of Business and Economics,
The University of Hong Kong
Pokfulam, Hong Kong

E-Mail: econlei@hku.hk
Institutional Affiliation: The University of Hong Kong

NBER Working Papers and Publications

June 2017Complex Asset Markets
with Andrea L. Eisfeldt, Hanno Lustig: w23476
We develop a dynamic equilibrium model of complex asset markets with endogenous entry and exit in which the investment technology of investors with more expertise is subject to less asset-specific risk. The joint equilibrium distribution of financial expertise and wealth then determines risk bearing capacity. Higher expert demand lowers equilibrium required returns, reducing overall participation. In equilibrium, investor participation in more complex asset markets with more asset-specific risk is lower, despite higher market- level Sharpe ratios, provided that asset complexity and expertise are complementary. We analyze how asset complexity affects the stationary wealth distribution of complex asset investors. Because of selection, increased asset complexity reduces wealth concentration, ...

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