Download or read book Asset Pricing With Heterogenous Beliefs in a Two Trees Setting written by Simon Lysbjerg Hansen and published by . This book was released on 2007 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the stock price formation in a pure-exchange economy populated by investors who disagree on the expected dividend growth rates. The homogenous beliefs equilibrium model of Cochrane, Longstaff, and Santa-Clara (2005) is extended to allow for belief heterogeneity, and the equilibrium is characterized. Stock prices and the volatility structure is expressed as conditional expectations, which can be solved numerically with Monte-Carlo simulations. The equilibrium is solved for in three stylized examples. First, confidence in the numerical scheme is obtained by replicating the results of Cochrane et al. (2005). Then, parameter uncertainty (but homogenous beliefs) is introduced and is found to decrease (increase) expected rates of return of the asset that constitutes less (more) of the market portfolio. Return volatilities increase and return correlation decreases as a consequence of parameter uncertainty. Finally, belief heterogeneity is found to complicate the economy even further, the effect being most profound for the return volatility and correlation structures.

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:

Download or read book Handbook on Systemic Risk written by Jean-Pierre Fouque and published by Cambridge University Press. This book was released on 2013-05-23 with total page 993 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Handbook on Systemic Risk, written by experts in the field, provides researchers with an introduction to the multifaceted aspects of systemic risks facing the global financial markets. The Handbook explores the multidisciplinary approaches to analyzing this risk, the data requirements for further research, and the recommendations being made to avert financial crisis. The Handbook is designed to encourage new researchers to investigate a topic with immense societal implications as well as to provide, for those already actively involved within their own academic discipline, an introduction to the research being undertaken in other disciplines. Each chapter in the Handbook will provide researchers with a superior introduction to the field and with references to more advanced research articles. It is the hope of the editors that this Handbook will stimulate greater interdisciplinary academic research on the critically important topic of systemic risk in the global financial markets.

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 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 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 and Routes to Complex Dynamics in Asset Pricing Models with Price Contingent Contracts written by William A. Brock and published by . This book was released on 2002 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Asset Pricing with Heterogeneous and Constrained Investors written by Lei Shi and published by . This book was released on 2019 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze the joint effect of borrowing and short-sale constraints in a dynamic economy populated by two constrained investors with heterogeneous risk aversions and beliefs. We find that equilibrium prices adjust in such a way that the constraints never simultaneously bind. When the constraints are tight, we observe a regime switch behavior (discontinuities) in the risk-free rate and market price of risk at a critical state, where two equilibria exist, i.e., either constraint can be binding. Stock return volatility is the lowest at the critical state. Imposing a ban on short-sales at the same time when access to credit is restrictive or tightening borrowing during a short-sale ban can potentially move the equilibrium away from the critical state, thus increase stock return volatility rather than reducing it.

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 Essays on Asset Pricing Under Heterogeneous Beliefs written by Shangwen Wang and published by . This book was released on 2002 with total page 614 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Memory and Asset Pricing Models with Heterogeneous Beliefs written by Miroslav Verbič and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Memory and Asset Pricing Models with Heterogeneous Beliefs.

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 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 Essays on Asset Pricing with Heterogeneous Beliefs and Bounded Rational Investor written by Lei Lu and published by . This book was released on 2007 with total page 142 pages. Available in PDF, EPUB and Kindle. Book excerpt: "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." --

Download or read book Two Trees written by John H. Cochrane and published by . This book was released on 2009 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: If stocks go up, investors may want to rebalance their portfolios. But investors cannot all rebalance. Expected returns may need to change so that the average investor is still happy to hold the market portfolio despite its changed composition. In this way, simple market clearing can give rise to complex asset market dynamics. We study this phenomenon in a very simple model. Our model has two quot;Lucas trees.quot; Each tree has i.i.d. dividend growth, and the representative investor has log utility. We are able to give analytical solutions to the model. Despite this simple setup, price-dividend ratios, expected returns, and return variances vary through time. A dividend shock leads to quot;underreactionquot; in some states, as expected returns rise and prices slowly adjust, and quot;overreactionquot; in others. Expected returns and excess returns are predictable by price-dividend ratios in the time series and in the cross section, roughly matching value effects and return forecasting regressions. Returns generally display positive serial correlation and negative cross-serial correlation, leading to quot;momentum,quot; but the opposite signs are possible as well. A shock to one asset's dividend affects the price and expected return of the other asset, leading to substantial correlation of returns even when there is no correlation of cash flows and giving the appearance of quot;contagion.quot; Market clearing allows the quot;inverse portfolioquot; problem to be solved, in which the weights of the assets in the market portfolio are quot;invertedquot; to solve for the parameters of the assets' return generating process.

Download or read book Asset Pricing with Climate Risks and Heterogeneous Beliefs written by Marco Simon Thalhammer and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Asset Pricing in Heterogeneous Economies written by Yvan Lengwiler and published by . This book was released on 2005 with total page 149 pages. Available in PDF, EPUB and Kindle. Book excerpt: We extend the Lucas asset pricing tree economy to a heterogeneous population. Perturbative methods are applied to explicitly calculate the second order response of returns to heterogeneity. We determine the status of various stylized facts. For example, we find that the equity premium always varies counter cyclically and that a sufficiently positive correlation between risk aversion and patience increases the risk premium and decreases the interest rate, thus giving another perspective on the equity premium and the risk-free rate puzzles. This motivates us to make a concrete social prediction. We also give a complete description of the infinite horizon behavior. First, there exists a (generically) unique agent who eventually consumes everything at infinite horizon. Second, there is another agent whose preferences determine the expected return rate of holding equity forever. There is a third agent whose preferences determine the very long end of the interest rate term structure. Finally, there is a fourth agent who determines the price of long maturity call options. It is shown that a large equity premium will result if the preferences of these dominant agents are sufficiently different. Moreover, arbitrarily small changes in the composition of the population can lead to large (discontinuous) changes of long (infinite) horizon expected returns. It is also shown that the conventional representative agent picture leads to incorrect predictions about the infinite horizon limit.