First-Order Risk Aversion, Heterogeneity, and Asset Market Outcomes
AbstractWe examine a wide range of two-date economies populated by heterogeneous agents with the most common forms of nonexpected utility preferences used in finance and macroeconomics. We demonstrate that the risk premium and the risk-free rate in these models are sensitive to ignoring heterogeneity. This follows because of endogenous withdrawal by nonexpected utility agents from the market for the risky asset. This finding is important precisely because these alternative preferences have frequently been proposed as possible resolutions to various asset pricing puzzles, "and" they have all been examined exclusively in a representative agent framework. Copyright (c) 2009 the American Finance Association.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by American Finance Association in its journal The Journal of Finance.
Volume (Year): 64 (2009)
Issue (Month): 4 (08)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Scott Condie & Jayant Ganguli, 2012.
"The Pricing Effects of Ambiguous Private Information,"
INET Research Notes
16, Institute for New Economic Thinking (INET).
- Jayant Ganguli & Scott Condie, 2012. "The pricing effects of ambiguous private information," Economics Discussion Papers 720, University of Essex, Department of Economics.
- Matteo Del Vigna, 2011. "Financial market equilibria with heterogeneous agents: CAPM and market segmentation," Working Papers - Mathematical Economics 2011-08, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
- Massimo Guidolin & Francesca Rinaldi, 2011.
"Ambiguity in Asset Pricing and Portfolio Choice: A Review of the Literature,"
417, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Massimo Guidolin & Francesca Rinaldi, 2013. "Ambiguity in asset pricing and portfolio choice: a review of the literature," Theory and Decision, Springer, vol. 74(2), pages 183-217, February.
- Massimo Guidolin & Francesca Rinaldi, 2010. "Ambiguity in asset pricing and portfolio choice: a review of the literature," Working Papers 2010-028, Federal Reserve Bank of St. Louis.
- De Giorgi, Enrico G. & Legg, Shane, 2012. "Dynamic portfolio choice and asset pricing with narrow framing and probability weighting," Journal of Economic Dynamics and Control, Elsevier, vol. 36(7), pages 951-972.
- Martin Schneider, 2010. "The Research Agenda: Martin Schneider on Multiple Priors Preferences and Financial Markets," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 11(2), April.
- Larry G. Epstein & Martin Schneider, 2010.
"Ambiguity and Asset Markets,"
NBER Working Papers
16181, National Bureau of Economic Research, Inc.
- Barberis, Nicholas & Huang, Ming, 2009. "Preferences with frames: A new utility specification that allows for the framing of risks," Journal of Economic Dynamics and Control, Elsevier, vol. 33(8), pages 1555-1576, August.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.