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Heterogeneous expectations and equilibrium price of a risky asset a note by Yoon Dokko

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Published by College of Commerce and Business Administration, University of Illinois at Urbana-Champaign in Urbana, Ill .
Written in English

Subjects:

  • Assets (Accounting),
  • Economics

Book details:

Edition Notes

Includes bibliographical references (p. 8).

StatementYoon Dokko ; Myung-Jin Kim
SeriesBEBR faculty working paper -- no. 1095, BEBR faculty working paper -- no. 1095.
ContributionsKim, Myung-Jin, University of Illinois at Urbana-Champaign
The Physical Object
Pagination8 p. ;
ID Numbers
Open LibraryOL25105940M
OCLC/WorldCa720064650

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the equilibrium price, they will disre-gard their information in favor of the equilibrium price. Hellwig () and Grossman and Stiglitz () attempted to solve the asset pricing paradox by introducing the supply of risky assets and liquidity traders as random variables. Diamond and Verrecchia () consider the random supply of risky Author: R. Agus Sartono. The main results of this paper are: (1) investors pursue short-term gains when perceiving heterogeneous expectations; (2) important properties of the equilibrium price in the Harrison-Kreps model. The main results of this paper are: (1) investors pursue short-term gains when perceiving heterogeneous expectations; (2) important properties of the equilibrium price in the Harrison-Kreps model still hold even when limited short sales are allowed; (3) an increase in the dispersion of expectations about future dividends raises the risky asset. Under heterogeneous expectations, the mean–variance model of capital market equilibrium is employed to determine the effect restricting short sales has on equilibrium asset prices. Two equivalent markets differing only with respect to short sale restrictions are compared.

Heterogeneous Expectations and Bond Markets where μ D and σ D are constants, and Z D(t) is a standard Brownian motion process. We assume that the price level p t (e.g., the CPI index) follows dp t p t = π tdt, (2) where π t is the inflation rate. Note that π t follows a linear diffusion process dπ t =−λπ(π t −θ t)dt+σπdZπ(t), (3) where λπ is the mean-reverting parameter, θ.   A model of dynamic equilibrium asset pricing with heterogeneous beliefs and extraneous risk. carry through, with appropriate modifications. Propositions 8 and 9 report the equilibrium market prices of risk, prices and price expectations in a sequence of markets. Econometrica, 40 (), pp. In view of the output–asset price relation, the function accounts for the output gaps in terms of the asset price gaps. Recall that the equilibrium features q t,1 = q* and q t,2 asset price in the high risk premium state, in order to mitigate the demand recession. In equilibrium, the marginal price of risk for a risky security must be C. investors have heterogeneous expectations. D. all investors are rational, and all investors have the same holding period. E. the efficient frontier without a risk-free asset. B. A "fairly priced" asset lies A. above the security market line.

Capital asset prices: A theory of market equilibrium under conditions of risk. The Journal of Finance, 19(3), – Crossref, ISI, Google Scholar; Tong, J, J Hu and J Hu (). Computing equilibrium prices for a capital asset pricing model with heterogeneous beliefs and margin-requirement constraints. The existence theorem of Allingham (Econometrica –, ) for the capital asset pricing model (CAPM) is generalized to the case where agents have heterogeneous expectations on the.   In the determination of equilibrium, we employ a representative investor with stochastic weights and solve for all economic quantities in closed form, including the perceived market prices of risk and interest rate. The basic analysis is generalized to incorporate multiple sources of risk, disagreement about nonfundamentals, and multiple investors. A. heterogeneous expectations B. equal risk aversion C. asymmetric information According to the capital asset pricing model, in equilibrium _____. commodity prices of %, and a risk-free rate of 4%. The beta for exposure to market risk is 1, and the beta for exposure to commodity.