Asset Pricing with Distorted Beliefs: Are Equity Returns Too Good To Be True?
We study a Lucas asset pricing model that is standard in all respects representative agent's subjective beliefs about endowment growth are distorted. Using constant-relative-risk-aversion (CRRA) utility a CRRA coefficient below ten that exhibit, on average, excessive pessimism over expansions and excessive optimism over" contractions, our model is able to match the first and second moments of the equity premium and" risk-free rate, as well as the persistence and predictability of excess returns found in the data."
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
6354.
| Length: | |
| Date of creation: | Jan 1998 |
| Date of revision: | |
| Publication status: | published as Cecchetti, Stephen G., Pok-sang Lam and Nelson C. Mark. "Asset Pricing With Distorted Beliefs: Are Equity Returns To Good To Be True?," American Economic Review, 2000, v90(4,Sep), 787-805. |
| Handle: | RePEc:nbr:nberwo:6354 |
| Note: | AP |
| Contact details of provider: | Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A. Phone: 617-868-3900 Web page: http://www.nber.org Email: More information through EDIRC
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