Download or read book Aggregation of Heterogeneous Beliefs written by Elyes Jouini and published by . This book was released on 2015 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper is a generalization of Calvet et al. (2002) to a dynamic setting. We propose a method to aggregate heterogeneous individual probability beliefs, in dynamic and complete asset markets, into a single consensus probability belief. This consensus probability belief, if commonly shared by all investors, generates the same equilibrium prices as well as the same individual marginal valuation as in the original heterogeneous probability beliefs setting. As in Calvet et al. (2002), the construction stands on a fictitious adjustment of the market portfolio. The adjustment process reflects the aggregation bias due to the diversity of beliefs. In this setting, the construction of a representative agent is shown to be also valid.

Download or read book Aggregation of Heterogeneous Beliefs Assets Pricing and Risk Sharing in Complete Financial Markets written by Laurent Calvet and published by . This book was released on 2004 with total page 73 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Aggregation of Heterogeneous Beliefs and Asset Pricing Theory written by Carl Chiarella and published by . This book was released on 2008 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Aggregation on Heterogeneous Beliefs Asset Pricing and Risk Sharing in Complete Financial Markets written by Laurent Calvet and published by . This book was released on 2004 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Heterogeneous Beliefs and Asset Pricing in Discrete Time written by Clotilde Napp and published by . This book was released on 2015 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Incomplete Information and Heterogeneous Beliefs in Continuous time Finance written by Alexandre C. Ziegler and published by Springer Science & Business Media. This book was released on 2012-11-02 with total page 205 pages. Available in PDF, EPUB and Kindle. Book excerpt: After a brief review of the existing incomplete information literature, the effect of incomplete information on investors' exptected utility, risky asset prices, and interest rates is described. It is demonstrated that increasing the quality of investors' information need not increase their expected utility and the prices of risky assets. The impact of other factors is discussed in detail. It is also demonstrated that financial markets in general do not aggregate information efficiently, a fact that can explain the equity premium puzzle.

Download or read book Aggregating Imprecise Or Conflicting Beliefs written by Aurelien Baillon and published by . This book was released on 2016 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: Two experiments show that violations of expected utility due to ambiguity, found in general decision experiments, also affect belief aggregation. Hence we use modern ambiguity theories to analyze belief aggregation, thus obtaining more refined and empirically more valid results than traditional theories can provide. We can now confirm more reliably that conflicting (heterogeneous) beliefs where some agents express certainty are processed differently than informationally equivalent imprecise homogeneous beliefs. We can also investigate new phenomena related to ambiguity. For instance, agents who express certainty receive extra weight (a cognitive effect related to ambiguity-generated insensitivity) and generate extra preference value (source preference; a motivational effect related to ambiguity aversion). Hence, incentive compatible belief elicitations that prevent manipulation are especially warranted when agents express certainty. For multiple prior theories of ambiguity, our findings imply that the same prior probabilities can be treated differently in different contexts, suggesting an interest in corresponding generalizations.

Download or read book Consensus Consumer and Intertemporal Asset Pricing with Heterogeneous Beliefs written by Elyes Jouini and published by . This book was released on 2015 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book On Aggregation and Representative Agent Equilibria written by Robert A. Jarrow and published by . This book was released on 2017 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: Aggregation is an often used tool in finance and macroeconomics, whereby economic equilibrium in a heterogeneous trader economy is characterized by means of the first order optimality conditions of a representative agent. In this paper we study the conditions under which a representative agent exists, and investigate the implications for the existence of equilibrium. The approach applies to markets which are incomplete, including markets with trading constraints, heterogeneous beliefs, and differential information.

Download or read book Aggregation of Information and Beliefs written by Marco Ottaviani and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Aggregation Reversals and the Social Formation of Beliefs written by Edward Ludwig Glaeser and published by . This book was released on 2007 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the past two elections, richer people were more likely to vote Republican while richer states were more likely to vote Democratic. This switch is an aggregation reversal, where an individual relationship, like income and Republicanism, is reversed at some level of aggregation. Aggregation reversals can occur when an independent variable impacts an outcome both directly and indirectly through a correlation with beliefs. For example, income increases the desire for low taxes but decreases belief in Republican social causes. If beliefs are learned socially, then aggregation can magnify the connection between the independent variable and beliefs, which can cause an aggregation reversal. We estimate the model's parameters for three examples of aggregation reversals, and show with these parameters that the model predicts the observed reversals.

Download or read book Recent Advances in Financial Engineering written by Masaaki Kijima and published by World Scientific. This book was released on 2010 with total page 284 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book consists of 11 papers based on research presented at the KIER-TMU International Workshop on Financial Engineering, held in Tokyo in 2009. The Workshop, organised by Kyoto University's Institute of Economic Research (KIER) and Tokyo Metropolitan University (TMU), is the successor to the Daiwa International Workshop on Financial Engineering held from 2004 to 2008 by Professor Kijima (the Chair of this Workshop) and his colleagues. Academic researchers and industry practitioners alike have presented the latest research on financial engineering at this international venue. These papers address state-of-the-art techniques in financial engineering, and have undergone a rigorous selection process to make this book a high-quality one. This volume will be of interest to academics, practitioners, and graduate students in the field of quantitative finance and financial engineering

Download or read book Zero Beta CAPM with Heterogeneous Beliefs written by Xuezhong He and published by . This book was released on 2008 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper extends the standard Black's zero-beta CAPM with homogeneous beliefs to the case with heterogeneous beliefs in terms of risk aversion coefficients, expected payoffs, and variance/covariance matrices of the payoffs of risky assets among heterogeneous agents within the mean-variance framework. Investors are bounded rational in the sense that they make their optimal decision based on their beliefs. By introducing and constructing a consensus belief of the market, we obtain equilibrium prices of risky assets and show that Black's zero-beta CAPM holds under the consensus belief. Various impacts of heterogeneity on the market equilibrium and agents' optimal portfolios are analyzed. In particular, we show that under market aggregation, the biased belief (from the market belief) of investors makes the optimal portfolio of the investor be mean-variance inefficient while the market portfolio is always on the efficient frontier. This demonstrates that, within this framework, bounded rational investors may never achieve their mean-variance efficiency under aggregation. At the same time, the efficiency of the whole market, measured by the efficiency of the market portfolio, can be achieved. The results also shed a light on the empirical finding that managed funds under-perform comparing to the market indices on average.

Download or read book Computational Methods in Economic Dynamics written by Herbert Dawid and published by Springer Science & Business Media. This book was released on 2011-03-23 with total page 217 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume is centered around the issue of market design and resulting market dynamics. The economic crisis of 2007-2009 has once again highlighted the importance of a proper design of market protocols and institutional details for economic dynamics and macroeconomics. Papers in this volume capture institutional details of particular markets, behavioral details of agents' decision making as well as spillovers between markets and effects to the macroeconomy. Computational methods are used to replicate and understand market dynamics emerging from interaction of heterogeneous agents, and to develop models that have predictive power for complex market dynamics. Finally treatments of overlapping generations models and differential games with heterogeneous actors are provided.

Download or read book Nonlinear Dynamics in Economics Finance and the Social Sciences written by Gian Italo Bischi and published by Springer Science & Business Media. This book was released on 2009-12-15 with total page 384 pages. Available in PDF, EPUB and Kindle. Book excerpt: Over the last two decades there has been a great deal of research into nonlinear dynamic models in economics, finance and the social sciences. This book contains twenty papers that range over very recent applications in these areas. Topics covered include structural change and economic growth, disequilibrium dynamics and economic policy as well as models with boundedly rational agents. The book illustrates some of the most recent research tools in this area and will be of interest to economists working in economic dynamics and to mathematicians interested in seeing ideas from nonlinear dynamics and complexity theory applied to the economic sciences.

Download or read book A Behavioral Approach to Asset Pricing written by Hersh Shefrin and published by Elsevier. This book was released on 2008-05-19 with total page 636 pages. Available in PDF, EPUB and Kindle. Book excerpt: Behavioral finance is the study of how psychology affects financial decision making and financial markets. It is increasingly becoming the common way of understanding investor behavior and stock market activity. Incorporating the latest research and theory, Shefrin offers both a strong theory and efficient empirical tools that address derivatives, fixed income securities, mean-variance efficient portfolios, and the market portfolio. The book provides a series of examples to illustrate the theory. The second edition continues the tradition of the first edition by being the one and only book to focus completely on how behavioral finance principles affect asset pricing, now with its theory deepened and enriched by a plethora of research since the first edition

Download or read book Financial Economics written by Thorsten Hens and published by Springer Science & Business Media. This book was released on 2010-07-01 with total page 377 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial economics is a fascinating topic where ideas from economics, mathematics and, most recently, psychology are combined to understand financial markets. This book gives a concise introduction into this field and includes for the first time recent results from behavioral finance that help to understand many puzzles in traditional finance. The book is tailor made for master and PhD students and includes tests and exercises that enable the students to keep track of their progress. Parts of the book can also be used on a bachelor level. Researchers will find it particularly useful as a source for recent results in behavioral finance and decision theory.