Paper: SSRN 3875134

Abstract

We develop a framework to theoretically and empirically analyze the fluctuations of the aggregate stock market. Households allocate capital to institutions, whi

Complexity vs Empirical Score

  • Math Complexity: 8.0/10
  • Empirical Rigor: 7.0/10
  • Quadrant: Holy Grail — high math complexity, high empirical rigor

Why this score: The paper introduces a novel theoretical framework with dynamic general equilibrium models and pricing kernels (high math complexity), while rigorously testing its core hypothesis using granular instrumental variables (GIV) on real financial data to estimate a precise price impact multiplier of ~5, including robustness checks (high empirical rigor).

Research Flowchart

  flowchart TD
  A["Research Goal<br>Understand aggregate stock market fluctuations"] --> B["Methodology<br>Develop theoretical & empirical framework"]
  B --> C["Input Data<br>Household & institutional capital allocation data"]
  C --> D["Computational Process<br>Estimate supply & demand elasticities"]
  D --> E["Key Finding<br>Markets are inelastic due to limited arbitrage"]
  E --> F["Outcome<br>Explains volatility puzzles & asset pricing"]