Download or read book Beliefs Portfolio Constraints Speculation and Asset Pricing written by Nam Dau and published by . This book was released on 2018 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the interaction of borrowing and short-sale constraints and their ultimate effects on asset pricing properties in a simultaneous presence of the constraints in a dynamic general equilibrium model with heterogeneous risk aversions and heterogeneous beliefs in the aggregate cash flow growth. The constraints negate the binding of each other, and hence they virtually never bind at once. Instead, there exist clear regions with alternative binding modes of the constraints with different constraints more likely to bind in different states of economy. The borrowing constraint is more active in bad times and the short-sale constraint is so in good times. The constraints bind intermittently--alternately at times--in transitory states of economy where their relative strength is balanced. Qualitatively matching empirically documented patterns of asset prices, I find that the constraints moderate their price effects but amplify their negative volatility effects, thereby can help curb the market volatility. However, a motive for speculation, featured by a speculative premium, arises due to any constraints, and thus can exist in any states of economy, not only in good times.
Download or read book Portfolio Choice and Asset Pricing with Endogenous Beliefs and Skewness Preference written by Center for Economic Research (Tilburg) and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Heterogeneous Prior Beliefs and Asset Pricing with Expected Gain from Active Trading written by Jun Zhang and published by . This book was released on 2006 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt:
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 Optimal Beliefs Asset Prices and the Preference for Skewed Returns written by Markus Konrad Brunnermeier and published by . This book was released on 2007 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: Human beings want to believe that good outcomes in the future are more likely, but also want to make good decisions that increase average outcomes in the future. We consider a general equilibrium model with complete markets and show that when investors hold beliefs that optimally balance these two incentives, portfolio holdings and asset prices match six observed patterns: (i) because the cost of biased beliefs are typically second-order, investors typically hold biased assessments of probabilities and so are not perfectly diversified according to objective metrics; (ii) because the costs of biased beliefs temper these biases, the utility costs of the lack of diversification are limited; (iii) because there is a complementarity between believing a state more likely and purchasing more of the asset that pays off in that state, investors over-invest in only one Arrow-Debreu security and smooth their consumption well across the remaining states; (iv) because different households can settle on different states to be optimistic about, optimal portfolios of ex ante identical investors can be heterogeneous; (v) because low-price and low-probability states are the cheapest states to buy consumption in, overoptimism about these states distorts consumption the least in the rest of the states, so that investors tend to overinvest in the most skewed securities; (vi) finally, because investors with optimal expectations have higher demand for more skewed assets, ceteris paribus, more skewed asset can have lower average returns.
Download or read book Essays on Asset Pricing written by Tian Liang and published by . This book was released on 2008 with total page 318 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Investors Beliefs and Their Implications on Asset Pricing Excess Returns and Volatilities in Financial Markets written by Doina G. Vlad and published by . This book was released on 2004 with total page 188 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Behavioral Preferences and Beliefs in Asset Pricing written by G. Gertsman 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 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 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 Financial Markets Theory written by Emilio Barucci and published by Springer. This book was released on 2017-06-08 with total page 843 pages. Available in PDF, EPUB and Kindle. Book excerpt: This work, now in a thoroughly revised second edition, presents the economic foundations of financial markets theory from a mathematically rigorous standpoint and offers a self-contained critical discussion based on empirical results. It is the only textbook on the subject to include more than two hundred exercises, with detailed solutions to selected exercises. Financial Markets Theory covers classical asset pricing theory in great detail, including utility theory, equilibrium theory, portfolio selection, mean-variance portfolio theory, CAPM, CCAPM, APT, and the Modigliani-Miller theorem. Starting from an analysis of the empirical evidence on the theory, the authors provide a discussion of the relevant literature, pointing out the main advances in classical asset pricing theory and the new approaches designed to address asset pricing puzzles and open problems (e.g., behavioral finance). Later chapters in the book contain more advanced material, including on the role of information in financial markets, non-classical preferences, noise traders and market microstructure. This textbook is aimed at graduate students in mathematical finance and financial economics, but also serves as a useful reference for practitioners working in insurance, banking, investment funds and financial consultancy. Introducing necessary tools from microeconomic theory, this book is highly accessible and completely self-contained. Advance praise for the second edition: "Financial Markets Theory is comprehensive, rigorous, and yet highly accessible. With their second edition, Barucci and Fontana have set an even higher standard!"Darrell Duffie, Dean Witter Distinguished Professor of Finance, Graduate School of Business, Stanford University "This comprehensive book is a great self-contained source for studying most major theoretical aspects of financial economics. What makes the book particularly useful is that it provides a lot of intuition, detailed discussions of empirical implications, a very thorough survey of the related literature, and many completely solved exercises. The second edition covers more ground and provides many more proofs, and it will be a handy addition to the library of every student or researcher in the field."Jaksa Cvitanic, Richard N. Merkin Professor of Mathematical Finance, Caltech "The second edition of Financial Markets Theory by Barucci and Fontana is a superb achievement that knits together all aspects of modern finance theory, including financial markets microstructure, in a consistent and self-contained framework. Many exercises, together with their detailed solutions, make this book indispensable for serious students in finance."Michel Crouhy, Head of Research and Development, NATIXIS
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 Advanced Asset Pricing Theory written by Ma Chenghu and published by World Scientific Publishing Company. This book was released on 2011-01-03 with total page 816 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides a broad introduction of modern asset pricing theory with equal treatments for both discrete-time and continuous-time modeling. Both the no-arbitrage and the general equilibrium approaches of asset pricing theory are treated coherently within the general equilibrium framework.The analyses and coverage are up to date, comprehensive and in-depth. Topics include microeconomic foundation of asset pricing theory, the no-arbitrage principle and fundamental theorem, risk measurement and risk management, sequential portfolio choice, equity premium decomposition, option pricing, bond pricing and term structure of interest rates. The merits and limitations are expounded with respect to allocation and information market efficiency, along with the classical expectations hypothesis concerning the information content of yield curve and bond prices. Efforts are also made towards the resolution of several well-documented puzzles in empirical finance, which include the equity premium puzzle, the risk free rate puzzle, and the money-ness bias phenomenon of Black-Scholes option pricing model.The theory is self-contained and unified in presentation. The inclusion of proofs and derivations to enhance the transparency of the underlying arguments and conditions for the validity of the economic theory makes an ideal advanced textbook or reference book for graduate students specializing in financial economics and quantitative finance. The explanations are detailed enough to capture the interest of those curious readers, and complete enough to provide necessary background material needed to explore further the subject and research literature.
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 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 Investment Philosophies written by Aswath Damodaran and published by John Wiley & Sons. This book was released on 2012-06-22 with total page 615 pages. Available in PDF, EPUB and Kindle. Book excerpt: The guide for investors who want a better understanding of investment strategies that have stood the test of time This thoroughly revised and updated edition of Investment Philosophies covers different investment philosophies and reveal the beliefs that underlie each one, the evidence on whether the strategies that arise from the philosophy actually produce results, and what an investor needs to bring to the table to make the philosophy work. The book covers a wealth of strategies including indexing, passive and activist value investing, growth investing, chart/technical analysis, market timing, arbitrage, and many more investment philosophies. Presents the tools needed to understand portfolio management and the variety of strategies available to achieve investment success Explores the process of creating and managing a portfolio Shows readers how to profit like successful value growth index investors Aswath Damodaran is a well-known academic and practitioner in finance who is an expert on different approaches to valuation and investment This vital resource examines various investing philosophies and provides you with helpful online resources and tools to fully investigate each investment philosophy and assess whether it is a philosophy that is appropriate for you.
