Consensus Consumer And Intertemporal Asset Pricing With Heterogeneous Beliefs
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Author | : Elyes Jouini |
Publisher | : |
Total Pages | : 42 |
Release | : 2015 |
Genre | : |
ISBN | : |
The aim of the paper is to analyze the impact of heterogeneous beliefs in an otherwise standard competitive complete market economy. The construction of a consensus probability belief, as well as a consensus consumer, are shown to be valid modulo an aggregation bias, which takes the form of a discount factor. In classical cases, the consensus probability belief is a risk-tolerance weighted average of the individual beliefs, and the discount factor is proportional to the beliefs dispersion. This discount factor makes the heterogeneous beliefs setting fundamentally different from the homogeneous beliefs setting, and it is consistent with the interpretation of belief heterogeneity as a source of risk.We then use our construction to rewrite in a simple way the equilibrium characteristics (market price of risk, risk premium, risk-free rate) in a heterogeneous beliefs framework and to analyze the impact of belief heterogeneity. Finally, we show that it is possible to construct specific parametrizations of the heterogeneous beliefs model that lead to globally higher risk premia, lower risk-free rates, and risk premia that are lower for assets with higher belief dispersion.
Author | : Clotilde Napp |
Publisher | : |
Total Pages | : 36 |
Release | : 2015 |
Genre | : |
ISBN | : |
The aim of the paper is to analyze the impact of heterogeneous beliefs in an otherwise standard competitive complete markets discrete time economy. The construction of a consensus belief, as well as a consensus consumer are shown to be valid modulo a predictable aggregation bias, which takes the form of a discount factor. We use our construction of a consensus consumer to investigate the impact of beliefs heterogeneity on the CCAPM and on the expression of the risk free rate. We focus on the pessimism/doubt of the consensus consumer and we study their impact on the equilibrium characteristics (market price of risk, risk free rate). We finally analyze how pessimism and doubt at the aggregate level result from pessimism and doubt at the individual level.
Author | : Carl Chiarella |
Publisher | : |
Total Pages | : 23 |
Release | : 2008 |
Genre | : |
ISBN | : |
Within the standard mean-variance framework, this paper provides a procedure to aggregate the heterogeneous beliefs in not only risk preferences and expected payoffs but also variances/covariances into a market consensus belief. Consequently, an asset equilibrium price under heterogeneous beliefs is derived. We show that the market aggregate behavior is in principle a weighted average of heterogeneous individual behaviors. The CAPM-like equilibrium price and return relationships under heterogeneous beliefs are obtained. The impact of diversity of heterogeneous beliefs on the market aggregate risk preference, asset volatility, equilibrium price and optimal demands of investors is examined. As a special case, our result provides a simple explanation for the empirical relation between cross-sectional volatility and expected returns.
Author | : Süleyman Başak |
Publisher | : |
Total Pages | : 33 |
Release | : 2000 |
Genre | : Stocks |
ISBN | : |
Author | : William A. Brock |
Publisher | : |
Total Pages | : 21 |
Release | : 2002 |
Genre | : |
ISBN | : |
Author | : Lei Lu |
Publisher | : |
Total Pages | : 142 |
Release | : 2007 |
Genre | : Decision making |
ISBN | : |
"The thesis includes two essays on asset pricing. In the first essay, "Asset Pricing in a Monetary Economy with Heterogeneous Beliefs", we shed new light on the role of monetary policy in asset pricing by focusing on the case where investors have heterogeneous expectations about future monetary policy. Under heterogeneity in beliefs, investors place bets against each other on the evolution of money supply, and as a result, the sharing of wealth in the economy evolves stochastically over time, making money non-neutral. Employing a continuous-time, general equilibrium model, we establish these fluctuations to be rich in implications, in that they majorly affect the equilibrium prices of all assets, as well as inflation. In particular, we find that the stock market volatility may be significantly increased by the heterogeneity in beliefs, a conclusion supported by our empirical analysis. The second essay is titled with " Asset Pricing and Welfare Analysis with Bounded Rational Investors". Motivated by the fact that investors have limited ability and insufficient knowledge to process information, I model investors' bounded-rational behavior in processing information and study its implications on asset pricing. Bounded rational investors perceive "correlated" information (which consists of news that is correlated with fundamentals, but provides no information on them) as "fundamental" information. This generates "bounded rational risk". Asset prices and volatilities of asset returns are derived. Specially, the equity premium and the stock volatility are raised under some conditions. I also analyze the welfare impact of bounded rationality." --
Author | : Carl Chiarella |
Publisher | : |
Total Pages | : 38 |
Release | : 1999 |
Genre | : Finance |
ISBN | : |
Author | : Shangwen Wang |
Publisher | : |
Total Pages | : 614 |
Release | : 2002 |
Genre | : |
ISBN | : |
Author | : Marco Simon Thalhammer |
Publisher | : |
Total Pages | : 0 |
Release | : 2023 |
Genre | : |
ISBN | : |
Author | : Carl Chiarella |
Publisher | : |
Total Pages | : 42 |
Release | : 2000 |
Genre | : Capital assets pricing model |
ISBN | : |