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Nonrevealing Equilibria and Consumption-Based Asset Pricing Models

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Author Info
James Gunderson (University of Wyoming)
Abstract

In the rational expectations equilibrium of this paper, agents have private information and differing information partitions and therefore assign differing conditional distributions to asset payoffs and other economic variables relevant to their investment choices. Standard asset pricing models typically do not recognize the impact of these differing information partitions, and empirical tests based on these models thus measure asset riskiness in a way that may not be relevant to any of the agents' decisions. I show how this can lead to distorted estimates of investment risk and how it can make the equity premium appear difficult to explain.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Topics in Theoretical Economics.

Volume (Year): 6 (2006)
Issue (Month): 1 ()
Pages: 1335-1335
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Handle: RePEc:bep:thetop:v:6:y:2006:i:1:p:1335-1335

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Related research
Keywords: risk premium equity premium nonrevealing private information

Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Diamond, Douglas W. & Verrecchia, Robert E., 1981. "Information aggregation in a noisy rational expectations economy," Journal of Financial Economics, Elsevier, vol. 9(3), pages 221-235, September. [Downloadable!] (restricted)
  2. Jordan, J. S., 1982. "The generic existence of rational expectations equilibrium in the higher dimensional case," Journal of Economic Theory, Elsevier, vol. 26(2), pages 224-243, April. [Downloadable!] (restricted)
  3. Harris, Milton & Raviv, Artur, 1993. "Differences of Opinion Make a Horse Race," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 6(3), pages 473-506. [Downloadable!] (restricted)
  4. Anderson, Robert M. & Sonnenschein, Hugo, 1982. "On the existence of rational expectations equilibrium," Journal of Economic Theory, Elsevier, vol. 26(2), pages 261-278, April. [Downloadable!] (restricted)
  5. Cogley, Timothy, 2002. "Idiosyncratic risk and the equity premium: evidence from the consumer expenditure survey," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 309-334, March. [Downloadable!] (restricted)
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  6. Schwert, G William, 1981. "The Adjustment of Stock Prices to Information about Inflation," Journal of Finance, American Finance Association, vol. 36(1), pages 15-29, March. [Downloadable!] (restricted)
  7. Evan W. Anderson & Eric Ghysels & Jennifer L. Juergens, 2005. "Do Heterogeneous Beliefs Matter for Asset Pricing?," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 18(3), pages 875-924. [Downloadable!] (restricted)
  8. Allen F. & Morris S. & Postlewaite A., 1993. "Finite Bubbles with Short Sale Constraints and Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 61(2), pages 206-229, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. SHerrill Shaffer, 2008. "Strategic Risk Aversion," CAMA Working Papers 2008-25, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
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