Mean Variance Preferences, Expectations Formation, And The Dynamics Of Random Asset Prices
AbstractThis paper analyzes the dynamics of a general explicit random price process of finitely many assets in an economy with overlapping generations of heterogeneous consumers forming optimal portfolios, extending the one dimensional investigation of Bohm, Deutscher and Wenzelburger (2000). Consumers maximize expected utility with respect to subjective transition probabilities defined by Markov kernels. Given a forecasting rule (predictor) and an exogeneous stochastic process of producer dividends, the dynamics of the economy is described as a random dynamical system in the sense of Arnold (1998). The paper investigates existence and stability of random fixed points (invariant measures) for mean-variance preferences under various forecasting schemes, including unbiased predictions as well as OLS forecasting. Numerical simulations show the stability and the performance of the different predictors for linear mean-variance preferences. Alternative random dividend processes are provided.
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 Wiley Blackwell in its journal Mathematical Finance.
Volume (Year): 15 (2005)
Issue (Month): 1 ()
Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0960-1627
Other versions of this item:
- Volker Bohm & Carl Chiarella, 2000. "Mean Variance Preferences, Expectations Formation, and the Dynamics of Random Asset Prices," Research Paper Series 46, Quantitative Finance Research Centre, University of Technology, Sydney.
- E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
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.:
- William A. Brock & Cars H. Hommes, 1997.
"A Rational Route to Randomness,"
Econometric Society, vol. 65(5), pages 1059-1096, September.
- Eichberger, Jurgen & Harper, Ian R., 1997. "Financial Economics," OUP Catalogue, Oxford University Press, number 9780198775409.
- Evans, George W. & Honkapohja, Seppo, 1999. "Learning dynamics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 7, pages 449-542 Elsevier.
- Brock, William A. & Hommes, Cars H., 1998.
"Heterogeneous beliefs and routes to chaos in a simple asset pricing model,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 22(8-9), pages 1235-1274, August.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
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.