Aggregation of Heterogeneous Beliefs
AbstractThis paper is a generalization of [Calvet, L., Grandmont, J.-M., Lemaire, I., 2002. Aggregation of heterogenous beliefs and asset pricing in complete financial markets. Working paper] to a dynamic setting. We propose a method to aggregate heterogeneous individual probability beliefs, in dynamic and complete asset markets, into a single consensus probability belief. This consensus probability belief, if commonly shared by all investors, generates the same equilibrium prices as well as the same individual marginal valuation as in the original heterogeneous probability beliefs setting. As in [Calvet, L., Grandmont, J.-M., Lemaire, I., 2002. Aggregation of heterogenous beliefs and asset pricing in complete financial markets. Working paper], the construction stands on a fictitious adjustment of the market portfolio. The adjustment process reflects the aggregation bias due to the diversity of beliefs. In this setting, the construction of a representative agent is shown to be also valid.
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.
Bibliographic InfoPaper provided by HAL in its series Post-Print with number halshs-00151562.
Date of creation: Sep 2006
Date of revision:
Publication status: Published, Journal of Mathematical Economics, 2006, 42, 6, 752-770
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00151562/en/
Contact details of provider:
Web page: http://hal.archives-ouvertes.fr/
Heterogeneous beliefs; Consensus belief; Aggregation of belief; Representative agents;
Other versions of this item:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
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.:
- Ely�s Jouini & Clotilde Napp, 2007.
"Consensus Consumer and Intertemporal Asset Pricing with Heterogeneous Beliefs,"
Review of Economic Studies,
Oxford University Press, vol. 74(4), pages 1149-1174.
- Elyès Jouini & Clotilde Napp, 2003. "Consensus consumer and intertemporal asset pricing with heterogeneous beliefs," Finance 0312001, EconWPA.
- Clotilde Napp & Elyès Jouini, 2007. "Consensus consumer and intertemporal asset pricing with heterogeneous beliefs," Post-Print halshs-00152348, HAL.
- Rubinstein, Mark, 1976. "The Strong Case for the Generalized Logarithmic Utility Model as the Premier Model of Financial Markets," Journal of Finance, American Finance Association, vol. 31(2), pages 551-71, May.
- Zapatero, Fernando, 1998. "Effects of financial innovations on market volatility when beliefs are heterogeneous," Journal of Economic Dynamics and Control, Elsevier, vol. 22(4), pages 597-626, April.
- Rubinstein, Mark, 1974. "An aggregation theorem for securities markets," Journal of Financial Economics, Elsevier, vol. 1(3), pages 225-244, September.
- Laurent Calvet & Jean-Michel Grandmont & Isabelle Lemaire, 2001. "Aggregation of Heterogenous Beliefs and Asset Pricing in Complete Financial Markets," Working Papers 2001-01, Centre de Recherche en Economie et Statistique.
- Basak, Suleyman & Cuoco, Domenico, 1998. "An Equilibrium Model with Restricted Stock Market Participation," Review of Financial Studies, Society for Financial Studies, vol. 11(2), pages 309-41.
- He, Xue-Zhong & Treich, Nicolas, 2012.
"Heterogeneous Beliefs and Prediction Market Accuracy,"
TSE Working Papers
13-394, Toulouse School of Economics (TSE).
- He, Xue-Zhong & Treich, Nicolas, 2013. "Heterogeneous Beliefs and Prediction Market Accuracy," LERNA Working Papers 13.05.392, LERNA, University of Toulouse.
- He, Xue-Zhong & Treich, Nicolas, 2012. "Heterogeneous Beliefs and Prediction Market Accuracy," IDEI Working Papers 775, Institut d'Économie Industrielle (IDEI), Toulouse.
- Christian Gollier, 2007. "Whom should we believe? Aggregation of heterogeneous beliefs," Journal of Risk and Uncertainty, Springer, vol. 35(2), pages 107-127, October.
- Costas Xiouros, 2006. "Asset price volatilities and trading volumes in heterogeneous agent economies," Computing in Economics and Finance 2006 466, Society for Computational Economics.
- Amos Storkey, 2011. "Machine Learning Markets," Papers 1106.4509, arXiv.org.
- Min Shen & Gabriel Turinici, 2012. "Liquidity generated by heterogeneous beliefs and costly estimations," Post-Print hal-00638966, HAL.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD).
If references are entirely missing, you can add them using this form.