We study the existence of dynamic equilibria with endogenously complete markets in continuous-time, heterogenous agents economies driven by diffusion processes. Our main results show that under appropriate conditions on the transition density of the state variables, market completeness can be deduced from the primitives of the economy. In particular, we prove that a sufficient condition for market completeness is that the volatility of dividends be invertible and provide higher order conditions that apply when this condition fails as is the case in the presence of fixed income securities. In contrast to previous research, our formulation does not require that securities pay terminal dividends, and thus allows for both finite and infinite horizon economies.

This paper presents an equilibrium model in a pure exchange economy when investors have three possible sources of heterogeneity. Investors may differ in their beliefs, in their level of risk aversion, and in their time preference rate. The authors study the impact of investors’ heterogeneity on equilibrium properties and, in particular, on the consumption shares, the market price of risk, the risk-free rate, the bond prices at different maturities, the stock price and volatility as well as on the stock's cumulative returns, and optimal portfolio strategies. The authors relate the heterogeneous economy with the family of associated homogeneous economies with only one class of investors. Cross-sectional as well as long-run properties are analyzed.