Ambiguity aversion and heterogeneity in financial markets: An empirical and theoretical perspective
AbstractThe financial crisis has warned modelers and policy makers about the inadequacy of existing macroeconomic models in explaining financial facts and in supporting the analysis of policies’ impact. This thesis assesses the contribution of assuming heterogeneity among investors and deviation from the rational expectations framework in order to explain the complex interlinkages between macroeconomic aggregates and financial risk. Chapter 2 provides an empirical analysis of a representative-investor consumption based asset pricing model with recursive ambiguity adverse preferences. Chapter 3 assesses the theoretical implications of ambiguity averse preference in the presence of time-varying perceived risk. Finally, the last chapter presents an asset pricing model with heterogeneous ambiguity attitudes showing that their interaction is able to reproduce the waves of optimism and pessimism observed in the asset prices series.
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 Tilburg University in its series Open Access publications from Tilburg University with number urn:nbn:nl:ui:12-5905989.
Date of creation: 2013
Date of revision:
Publication status: Published
Contact details of provider:
Web page: http://www.tilburguniversity.edu/
This paper has been announced in the following NEP Reports:
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.:
- Stephen G. Cecchetti & Pok-sang Lam & Nelson C. Mark, 1998.
"Asset Pricing with Distorted Beliefs: Are Equity Returns Too Good To Be True?,"
NBER Working Papers
6354, National Bureau of Economic Research, Inc.
- Pok-sang Lam & Stephen G. Cecchetti & Nelson C. Mark, 2000. "Asset Pricing with Distorted Beliefs: Are Equity Returns Too Good to Be True?," American Economic Review, American Economic Association, American Economic Association, vol. 90(4), pages 787-805, September.
- George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
- Phillippe Weil, 1997.
"The Equity Premium Puzzle and the Risk-Free Rate Puzzle,"
Levine's Working Paper Archive
1833, David K. Levine.
- Weil, Philippe, 1989. "The equity premium puzzle and the risk-free rate puzzle," Journal of Monetary Economics, Elsevier, Elsevier, vol. 24(3), pages 401-421, November.
- Philippe Weil, 1989. "The Equity Premium Puzzle and the Riskfree Rate Puzzle," NBER Working Papers 2829, National Bureau of Economic Research, Inc.
- Youwei Li & Bas Donkers & Bertrand Melenberg, 2010. "Econometric analysis of microscopic simulation models," Quantitative Finance, Taylor & Francis Journals, Taylor & Francis Journals, vol. 10(10), pages 1187-1201.
- 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,
Elsevier, vol. 22(8-9), pages 1235-1274, August.
- Andrew B. Abel, 1998.
"Risk Premia and Term Premia in General Equilibrium,"
NBER Working Papers
6683, National Bureau of Economic Research, Inc.
- Abel, Andrew B., 1999. "Risk premia and term premia in general equilibrium," Journal of Monetary Economics, Elsevier, Elsevier, vol. 43(1), pages 3-33, February.
- Brock, W.A. & Hommes, C.H., 1996.
"A Rational Route to Randomness,"
Working papers, Wisconsin Madison - Social Systems
9530r, Wisconsin Madison - Social Systems.
- Campbell, John & Cochrane, John, 2000.
"Explaining the Poor Performance of Consumption-Based Asset Pricing Models,"
3163265, Harvard University Department of Economics.
- John Y. Campbell & John H. Cochrane, 2000. "Explaining the Poor Performance of Consumption-based Asset Pricing Models," Journal of Finance, American Finance Association, American Finance Association, vol. 55(6), pages 2863-2878, December.
- John Y. Campbell & John H. Cochrane, 1999. "Explaining the Poor Performance of Consumption-Based Asset Pricing Models," NBER Working Papers 7237, National Bureau of Economic Research, Inc.
- Markus Leippold & Fabio Trojani & Paolo Vanini, 2008.
"Learning and Asset Prices Under Ambiguous Information,"
Review of Financial Studies, Society for Financial Studies,
Society for Financial Studies, vol. 21(6), pages 2565-2597, November.
- Fabio Trojani & Markus Leippold & Paolo Vanini, 2005. "Learning and Asset Prices under Ambiguous Information," University of St. Gallen Department of Economics working paper series 2005, Department of Economics, University of St. Gallen 2005-03, Department of Economics, University of St. Gallen.
- Pascal J. Maenhout, 2004. "Robust Portfolio Rules and Asset Pricing," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 17(4), pages 951-983.
- Mehra, Rajnish & Prescott, Edward C., 1985.
"The equity premium: A puzzle,"
Journal of Monetary Economics, Elsevier,
Elsevier, vol. 15(2), pages 145-161, March.
- Hansen, Lars Peter & Sargent, Thomas J., 2005. "Robust estimation and control under commitment," Journal of Economic Theory, Elsevier, Elsevier, vol. 124(2), pages 258-301, October.
- Blume, Lawrence & Easley, David, 1992. "Evolution and market behavior," Journal of Economic Theory, Elsevier, Elsevier, vol. 58(1), pages 9-40, October.
- Amilon, Henrik, 2008. "Estimation of an adaptive stock market model with heterogeneous agents," Journal of Empirical Finance, Elsevier, Elsevier, vol. 15(2), pages 342-362, March.
- Timothy Cogley & ThomasJ. Sargent, 2009. "Diverse Beliefs, Survival and the Market Price of Risk," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 119(536), pages 354-376, 03.
- Alvaro Sandroni, 2000. "Do Markets Favor Agents Able to Make Accurate Predicitions?," Econometrica, Econometric Society, Econometric Society, vol. 68(6), pages 1303-1342, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Economists Online Support).
If references are entirely missing, you can add them using this form.