Asset Prices Under Heterogenous Beliefs: Implications for the Equity Premium
An individual investor’s demands for risky capital and riskless bonds depend on the investor’s subjective beliefs about the payoff to risky capital. This paper determines equilibrium asset prices and returns in a capital market in which investors have heterogeneous subjective expectations of the payoff to capital. Increased heterogeneity increases the riskless rate of return and reduces the stock price. Heterogeneity can also dramatically increase the equilibrium equity premium on stocks relative to bonds. Therefore, calculating the equity premium under the assumption of homogeneous beliefs could dramatically understate the equity premium that would prevail under heterogeneity.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:|
|Contact details of provider:|| Postal: 3254 Steinberg Hall-Dietrich Hall, Philadelphia, PA 19104-6367|
Phone: (215) 898-7616
Fax: (215) 573-8084
Web page: http://finance.wharton.upenn.edu/~rlwctr/
More information through EDIRC