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 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 A theory of asset pricing based on heterogeneous information written by Elias Albagli and published by . This book was released on 2011 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a theory of asset prices that emphasizes heterogeneous information as the main element determining prices of different securities. Our main analytical innovation is in formulating a model of noisy information aggregation through asset prices, which is parsimonious and tractable, yet flexible in the specification of cash flow risks. We show that the noisy aggregation of heterogeneous investor beliefs drives a systematic wedge between the impact of fundamentals on an asset price, and the corresponding impact on cash flow expectations. The key intuition behind the wedge is that the identity of the marginal trader has to shift for different realization of the underlying shocks to satisfy the market-clearing condition. This identity shift amplifies the impact of price on the marginal trader's expectations. We derive tight characterization for both the conditional and the unconditional expected wedges. Our first main theorem shows how the sign of the expected wedge (that is, the difference between the expected price and the dividends) depends on the shape of the dividend payoff function and on the degree of informational frictions. Our second main theorem provides conditions under which the variability of prices exceeds the variability for realized dividends. We conclude with two applications of our theory. First, we highlight how heterogeneous information can lead to systematic departures from the Modigliani-Miller theorem. Second, in a dynamic extension of our model we provide conditions under which bubbles arise.
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 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 Asset Pricing and Portfolio Choice Theory written by Kerry Back and published by Oxford University Press. This book was released on 2010-09-10 with total page 504 pages. Available in PDF, EPUB and Kindle. Book excerpt: In Asset Pricing and Portfolio Choice Theory, Kerry E. Back at last offers what is at once a welcoming introduction to and a comprehensive overview of asset pricing. Useful as a textbook for graduate students in finance, with extensive exercises and a solutions manual available for professors, the book will also serve as an essential reference for scholars and professionals, as it includes detailed proofs and calculations as section appendices. Topics covered include the classical results on single-period, discrete-time, and continuous-time models, as well as various proposed explanations for the equity premium and risk-free rate puzzles and chapters on heterogeneous beliefs, asymmetric information, non-expected utility preferences, and production models. The book includes numerous exercises designed to provide practice with the concepts and to introduce additional results. Each chapter concludes with a notes and references section that supplies pathways to additional developments in the field.
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 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 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 Asset Pricing and Portfolio Choice Theory written by Kerry E. Back and published by Oxford University Press. This book was released on 2017-01-04 with total page 608 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the 2nd edition of Asset Pricing and Portfolio Choice Theory, Kerry E. Back offers a concise yet comprehensive introduction to and overview of asset pricing. Intended as a textbook for asset pricing theory courses at the Ph.D. or Masters in Quantitative Finance level with extensive exercises and a solutions manual available for professors, the book is also an essential reference for financial researchers and professionals, as it includes detailed proofs and calculations as section appendices. The first two parts of the book explain portfolio choice and asset pricing theory in single-period, discrete-time, and continuous-time models. For valuation, the focus throughout is on stochastic discount factors and their properties. A section on derivative securities covers the usual derivatives (options, forwards and futures, and term structure models) and also applications of perpetual options to corporate debt, real options, and optimal irreversible investment. A chapter on "explaining puzzles" and the last part of the book provide introductions to a number of additional current topics in asset pricing research, including rare disasters, long-run risks, external and internal habits, asymmetric and incomplete information, heterogeneous beliefs, and non-expected-utility preferences. Each chapter includes a "Notes and References" section providing additional pathways to the literature. Each chapter also includes extensive exercises.
Download or read book Heterogeneous Beliefs Risk and Learning in a Simple Asset Pricing Model written by Carl Chiarella and published by . This book was released on 1999 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Heterogeneous Beliefs Risk and Learning in a Simple Asset Pricing Model with a Market Maker written by Carl Chiarella and published by . This book was released on 2000 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Incomplete Information Heterogeneity and Asset Pricing written by Tony Berrada and published by . This book was released on 2005 with total page 71 pages. Available in PDF, EPUB and Kindle. Book excerpt: We consider a pure exchange economy where the drift of aggregate consumption is unobservable. Agents with heterogeneous beliefs and preferences act competitively on a financial and good markets. We discuss how equilibrium market prices of risk differ across agents, and in particular we discuss the properties of the market price of risk under the physical (objective) probability measure. We provide a number of specification of risk aversions and beliefs where the market price of risk is much higher than in the equivalent full information economy (homogeneous and heterogeneous preferences) and thus could provide an(other) answer to the equity premium puzzle. We also provide a representation of the equilibrium volatility and numerically assess the role of heterogeneity. We show that high level of stock volatility can be obtained with low level of aggregate consumption volatility when beliefs are heterogeneous. Finally we discuss how heterogeneity may explain the apparent predictability in stock return, and show that in-sample predictability can not be exploited by the agents, as it is in fact a result of their learning process.
Download or read book Asset Prices with Rational Beliefs written by Mordecai Kurz and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper introduces the concept of Rational Belief Equilibrium (RBE) as a basis for a new theory of asset pricing. Rational Beliefs are probability beliefs about future economic variables which cannot be contradicted by the data generated by the economy. RBE is an equilibrium in which the diverse beliefs of all the agents induce an equilibrium stochastic process of prices and quantities and these beliefs are, in general, wrong in the sense that they are different from the true probability of the equilibrium process. These beliefs are, however, Rational. Consequently, in an RBE agents use the wrong forecasting functions and their forecasting mistakes play a crucial role in the analysis. First, we show that these mistakes are the reason why stock returns are explainable in retrospect and forecastable whenever the environment remains unchanged over a long enough time interval for agents to learn the forecasting function. Second, the aggregation of these mistakes generates Endogenous Uncertainty: it is that component of the variability of stock prices and returns which is endogenously induced by the beliefs and actions of the agents rather than by the standard exogenous state variables. The paper develops some basic propositions and empirical implications of the theory of RBE. Based on the historical background of the post world war II era, we formulate an econometric model of stock returns which allows non-stationarity in the form of changing environments (quot;regimesquot;). A sequence of econometric hypotheses are then formulated as implications of the theory of RBE and tested utilizing data on common stock returns in the post war period. Apart from confirming the validity of our theory, the empirical analysis shows that (i) common stock returns are forecastable within each environment but it takes time for agents to learn and approximate the forecasting functions. For some agents the time is too short so that it is too late to profit from such learning; (ii) the equilibrium forecasting functions change from one environment to the other in an unforecastable manner so that learning the parameters of one environment does not improve the ability to forecast in the subsequent environments. (iii) more than 2/3 of the variability of stock returns is due to endogenous uncertainty rather than exogenous causes. The paper analyzes one example of a gross market overvaluation which was induced in the 1960's by an aggregation of agent's Mistakes.
Download or read book Basic Principles of Asset Pricing Theory written by Peter Bossaerts and published by . This book was released on 2000 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book A Model of Dynamic Equilibrium Asset Pricing with Heterogeneous Beliefs and Extraneous Risk written by Süleyman Başak and published by . This book was released on 2000 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Heterogeneous Beliefs and Routes to Chaos in a Simple Asset Pricing Model written by William A. Brock and published by . This book was released on 1999 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:
