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Heterogeneous Beliefs and Asset Pricing in Discrete Time

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Author Info
Clotilde Napp () (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris Dauphine - Paris IX)
Elyès Jouini () (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - CNRS : UMR7534 - Université Paris Dauphine - Paris IX)

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Abstract

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.

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Publisher Info
Paper provided by HAL in its series Post-Print with number halshs-00151536_v1.

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Date of creation: 2006
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Publication status: Published, Journal of Economic Dynamics and Control, 2006, 30, 7, 1233-1260
Handle: RePEc:hal:journl:halshs-00151536_v1

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Related research
Keywords: Beliefs; Heterogeneity; Consensus; Pessimism; Asset pricing;

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  1. Elyès Jouini & Selima Ben Mansour & Clotilde Napp, 2006. "Is There a Pessimistic Bias in Individual Beliefs? Evidence from a Simple Survey," Post-Print halshs-00176518_v1, HAL. [Downloadable!]
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  2. Selima Mansour & Elyès Jouini & Clotilde Napp, 2006. "Is There a “Pessimisticâ€\x9D Bias in Individual Beliefs? Evidence from a Simple Survey," Theory and Decision, Springer, vol. 61(4), pages 345-362, December. [Downloadable!] (restricted)
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This page was last updated on 2009-11-13.

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