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.
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Bibliographic InfoPaper provided by HAL in its series Post-Print with number halshs-00151562.
Date of creation: Sep 2006
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Publication status: Published, Journal of Mathematical Economics, 2006, 42, 6, 752-770
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Heterogeneous beliefs; Consensus belief; Aggregation of belief; Representative agents;
Other versions of this item:
- Elyès Jouini & Clotilde Napp, 2006. "Aggregation of Heterogeneous Beliefs," Post-Print halshs-00176505, HAL.
- Napp, Clotilde & Jouini, Elyès, 2006. "Aggregation of Heterogeneous Beliefs," Open Access publications from UniversitÃ© Paris-Dauphine urn:hdl:123456789/80, Université Paris-Dauphine.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- 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.:
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- Elyès Jouini & Clotilde Napp, 2003.
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- Jouini, Elyès & Napp, Clotilde, 2007. "Consensus Consumer and Intertemporal Asset Pricing with Heterogeneous Beliefs," Open Access publications from UniversitÃ© Paris-Dauphine urn:hdl:123456789/78, Université Paris-Dauphine.
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- Costas Xiouros, 2006. "Asset price volatilities and trading volumes in heterogeneous agent economies," Computing in Economics and Finance 2006 466, Society for Computational Economics.
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- Min Shen & Gabriel Turinici, 2012. "Liquidity generated by heterogeneous beliefs and costly estimations," Post-Print hal-00638966, HAL.
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