Speculative trading with rational beliefs and endogenous uncertainty
This paper introduces the framework of rational beliefs of Kurz (1994), which makes the assumptions of heterogeneous beliefs of Harrison and Kreps (1978) and Morris (1996) more plausible. Agents hold diverse beliefs that are “rational” in the sense of being compatible with ample observed data. In a non-stationary environment the agents only learn about the stationary measure of observed data, but their beliefs can remain non-stationary and diverse. Speculative trading then stems from disagreements among traders. In a Markovian framework of dividends and beliefs, we obtain analytical results to show how the speculative premium depends on the extent of heterogeneity of beliefs. In addition, we demonstrate that there exists a unique Rational Belief Equilibrium (RBE) generically with endogenous uncertainty (as defined by Kurz and Wu, 1996) and that the RBE price is higher than the rational expectation equilibrium price (REE) under some general conditions Copyright Springer-Verlag Berlin Heidelberg 2003
If 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.
Volume (Year): 21 (2003)
Issue (Month): 2 (03)
|Contact details of provider:|| Web page: http://link.springer.de/link/service/journals/00199/index.htm|
|Order Information:||Web: http://link.springer.de/orders.htm|
When requesting a correction, please mention this item's handle: RePEc:spr:joecth:v:21:y:2003:i:2:p:263-292. See general 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: (Guenther Eichhorn)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.