Equilibrium asset prices when agents trade periodically

This thesis presents a dynamic rational expectations model of asset prices in an economy characterized by agents who alternate between periods of trading and periods of non-trading. The motivation for this model is two-fold. First is the idea that investors cannot spend all of their time gathering information and trading, rather that they gather information for some period of time and trade and then attend to other business until they again gather new information. Second is the notion that the frequency with which investors alternate between trading and not trading is related to the ease and speed of information acquisition in the economy, and that with the proliferation of the internet, this frequency is increasing. We study the effect on equilibrium asset prices of an increase in the average rate at which agents gather information in the economy. The primary findings of this thesis are four-fold. First, long-term average prices increase with increasing trading frequency. Second, long-term average price-to-earnings ratios (PE) increase with increased trading frequency, a result that may explain the dramatic increases in average PE ratios observed in US equity data over the latter half of the 1990's and into the year 2000. Third, price volatility decreases with increased trading frequency, indicating a certain gain in efficiency garnered from more frequent trading. Finally, risk premium and risk premium per unit volatility both increase with decreased trading frequency, indicating that periodic trading introduces a real risk into the economy for which agents demand compensation.