NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Term Structure of Interest Rates in a Pure Exchange Economy with Heterogeneous Investors

Jiang Wang

NBER Working Paper No. 5172
Issued in July 1995
NBER Program(s):   AP

This paper presents an equilibrium model of the term structure of interest rates when investors have heterogeneous preferences. The basic model considers a pure exchange economy of two classes of investors with different (but constant) relative risk-aversion and gives closed-form solutions to bond prices. We use the model to examine the effect of preference heterogeneity on the behavior of bond yields. Extensions to cases of more than two investors are also considered.

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Document Object Identifier (DOI): 10.3386/w5172

Published: Journal of Financial Economics, Vol. 41, no. 1 (May 1996): 75-110.

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