Essays on the equilibrium dynamics of investors' optimal share holdings

This collection of essays investigates share trading activity on stock exchanges which is motivated by investors' attitudes towards risk. Trading in the essays' models will occur as market forces induce individuals to reallocate shares in order to obtain optimal risk - return tradeoffs for their invested wealth.;An examination of New York Stock Exchange data is conducted for the essays in order to determine the empirical regularities of trading activity which models of share trading behaviour must address. The study indicates that investors tend to follow share trading strategies which are related to stock market conditions. A "stylized fact" of a positive correlation between absolute price changes and trading volume emerges from the study. Intertemporal correlations between trading volume and price volatility are found, and their implications for financial markets are discussed.;Share holding strategies which are related to market conditions are developed in the models presented in the essays. Alternative explanations of share trading activity have relied upon differences in investors' beliefs about return prospects. Model predictions are developed in order that the importance of trading activity induced by risk aversion can be empirically evaluated.;Trading in the first model is motivated by investors' differing degrees of relative risk aversion. More risk-averse individuals sell shares to the other individuals as prices rise in order that all investors can maintain optimal proportions of wealth invested in corporate stock.;Portfolio insurance considerations lead to the trading activity in the second model. The managed portfolio moves into shares in order to obtain a higher expected return when it is "safe" to do so. The manager must move out of shares of corporate stock during market downturns in order to ensure that the portfolio's value does not fall below a minimum floor level.;Equilibrium prices and returns are obtained in the models in relation to the underlying production returns of the economies' assets. This allows issues such as the fundamental role of share trading in a production economy, and the price volatility effects of share holding strategies, to be explored in an equilibrium setting. The effect of corporations' investment and dividend policies on the aggregate risk exposure of an economy are also analyzed.;The models predict that trading activity will be heavier when share prices move significantly. An important and unique implication of the second model is that trading activity will increase a great deal when markets rebound following significant downturns, as well as when corporate stock becomes riskier. The second model also predicts that the increasing importance of institutions on stock exchanges can be expected to increase share price volatility.