Higher Order Expectations in Asset Pricing

Détails

ID Serval
serval:BIB_789374A3BBE7
Type
Article: article d'un périodique ou d'un magazine.
Collection
Publications
Titre
Higher Order Expectations in Asset Pricing
Périodique
Journal of Money, Credit and Banking
Auteur(s)
Bacchetta P., van Wincoop E.
ISSN
0022-2879
Statut éditorial
Publié
Date de publication
2008
Peer-reviewed
Oui
Volume
40
Numéro
5
Pages
837-866
Langue
anglais
Résumé
We examine formally Keynes' idea that higher order beliefs can drive a wedge between an asset price and its fundamental value based on expected future payoffs. We call this the higher order wedge, which depends on the difference between higher and first order expectations of future payoffs. We analyze the determinants of this wedge and its impact on the equilibrium price in the context of a dynamic noisy rational expectations model. We show that the wedge reduces asset price volatility and disconnects the price from the present value of future payoffs. The impact of the higher order wedge on the equilibrium price can be quantitatively large.
Mots-clé
Higher order beliefs, Beauty contest, Asset pricing
Web of science
Création de la notice
15/05/2008 10:50
Dernière modification de la notice
03/03/2018 18:30
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