Asset Pricing with Disagreement and Uncertainty About the Length of Business Cycles

Published Online:https://doi.org/10.1287/mnsc.2017.2904

References

  • Abel AB (1999) Risk premia and term premia in general equilibrium. J. Monetary Econom. 43(1):3–33.CrossrefGoogle Scholar
  • Adrian T, Crump RK, Vogt E (2015) Nonlinearity and flight to safety in the risk-return trade-off for stocks and bonds (Federal Reserve Bank of New York).Google Scholar
  • Alti A, Tetlock PC (2014) Biased beliefs, asset prices, and investment: A structural approach. J. Finance 69(1):325–361.CrossrefGoogle Scholar
  • Andrade P, Crump RK, Eusepi S, Moench E (2019) Noisy information and fundamental disagreement. J. Monetary Econom. Forthcoming.Google Scholar
  • Bachmann R, Elstner S, Sims ER (2013) Uncertainty and economic activity: Evidence from business survey data. Amer. Econom. J. Macroeconomics 5(2):217–249.CrossrefGoogle Scholar
  • Backus DK, Gregory AW (1993) Theoretical relations between risk premiums and conditional variances. J. Bus. Econom. Statist. 11(2):177–185.Google Scholar
  • Baker SD, Hollifield B, Osambela E (2015) Disagreement, speculation, and aggregate investment. J. Financial Econom. 119(1):210–225.CrossrefGoogle Scholar
  • Bansal R, Yaron A (2004, 08) Risks for the long run: A potential resolution of asset pricing puzzles. J. Finance 59(4):1481–1509.CrossrefGoogle Scholar
  • Bansal R, Kiku D, Yaron A (2010) Long run risks, the macroeconomy, and asset prices. Amer. Econom. Rev. 100(2):542–546.CrossrefGoogle Scholar
  • Bansal R, Kiku D, Yaron A (2012) An empirical evaluation of the long-run risks model for asset prices. Critical Finance Rev. 1(1):183–221.CrossrefGoogle Scholar
  • Barberis N, Huang M, Santos T (2001) Prospect theory and asset prices. Quart. J. Econom. 116(1):1–53.CrossrefGoogle Scholar
  • Barinov A (2014) Analyst disagreement and aggregate volatility risk. J. Financial Quant. Anal. 48(6):1877–1900.CrossrefGoogle Scholar
  • Basak S (2000) A model of dynamic equilibrium asset pricing with heterogeneous beliefs and extraneous risk. J. Econom. Dynam. Control 24(1):63–95.CrossrefGoogle Scholar
  • Basak S (2005) Asset pricing with heterogeneous beliefs. J. Banking Finance 29(11):2849–2881.CrossrefGoogle Scholar
  • Beeler J, Campbell JY (2012) The long-run risks model and aggregate asset prices: An empirical assessment. Critical Finance Rev. 1:141–182.CrossrefGoogle Scholar
  • Benth FE, Khedher A (2016) Weak Stationarity of Ornstein-Uhlenbeck Processes with Stochastic Speed of Mean Reversion (Springer International Publishing, Cham, Switzerland), 153–189.CrossrefGoogle Scholar
  • Bernanke BS (2013) The Federal Reserve and the Financial Crisis, Economics Books, Vol. 1 (Princeton University Press, Princeton, NJ).CrossrefGoogle Scholar
  • Berrada T (2006) Incomplete information, heterogeneity, and asset pricing. J. Financial Econometrics 4(1):136–160.CrossrefGoogle Scholar
  • Berrada T (2009) Bounded rationality and asset pricing with intermediate consumption. Rev. Finance 13(4):693–725.CrossrefGoogle Scholar
  • Bhamra HS, Uppal R (2014) Asset prices with heterogeneity in preferences and beliefs. Rev. Financial Stud. 27(2):519–580.CrossrefGoogle Scholar
  • Bloom N (2009) The impact of uncertainty shocks. Econometrica 77(3):623–685.CrossrefGoogle Scholar
  • Bloom N, Floetotto M, Jaimovich N, Saporta-Eksten I, Terry SJ (2012) Really uncertain business cycles. NBER Working Paper 18245, National Bureau of Economic Research, Cambridge, MA.CrossrefGoogle Scholar
  • Bollerslev T (1986) Generalized autoregressive conditional heteroskedasticity. J. Econometrics 31(3):307–327.CrossrefGoogle Scholar
  • Brandt MW, Kang Q (2004) On the relationship between the conditional mean and volatility of stock returns: A latent VAR approach. J. Financial Econom. 72(2):217–257.CrossrefGoogle Scholar
  • Brennan MJ (1998) The role of learning in dynamic portfolio decisions. Eur. Finance Rev. 1(3):295–306.CrossrefGoogle Scholar
  • Brennan MJ, Xia Y (2001) Stock price volatility and equity premium. J. Monetary Econom. 47(2):249–283.CrossrefGoogle Scholar
  • Buraschi A, Jiltsov A (2006) Model uncertainty and option markets with heterogeneous beliefs. J. Finance 61(6):2841–2897.CrossrefGoogle Scholar
  • Buraschi A, Whelan P (2012) Term structure models and differences in beliefs. Working paper, Imperial College Business School, Kensington, London.CrossrefGoogle Scholar
  • Buraschi A, Trojani F, Vedolin A (2014) When uncertainty blows in the orchard: Comovement and equilibrium volatility risk premia. J. Finance 69(1):101–137.CrossrefGoogle Scholar
  • Cagetti M, Hansen LP, Sargent T, Williams N (2002) Robustness and pricing with uncertain growth. Rev. Financial Stud. 15(2):363–404.CrossrefGoogle Scholar
  • Campbell JY, Cochrane JH (1999) By force of habit: A consumption-based explanation of aggregate stock market behavior. J. Political Econom. 107(2):205–251.CrossrefGoogle Scholar
  • Carlin BI, Longstaff FA, Matoba K (2014) Disagreement and asset prices. J. Financial Econom. 114(2):226–238.CrossrefGoogle Scholar
  • Chan YL, Kogan L (2002) Catching up with the Joneses: Heterogeneous preferences and the dynamics of asset prices. J. Political Econom. 110(6):1255–1285.CrossrefGoogle Scholar
  • Cochrane JH (2008) The dog that did not bark: A defense of return predictability. Rev. Financial Stud. 21(4):1533–1575.CrossrefGoogle Scholar
  • Collin-Dufresne P, Johannes M, Lochstoer LA (2015) Parameter learning in general equilibrium: The asset pricing implications. Amer. Econom. Rev. 106(3):664–698.CrossrefGoogle Scholar
  • Cox JC, Huang C-F (1989) Optimal consumption and portfolio policies when asset prices follow a diffusion process. J. Economic Theory 49(1):33–83.CrossrefGoogle Scholar
  • Croce MM, Lettau M, Ludvigson SC (2014) Investor information, long-run risk, and the term structure of equity. Rev. Financial Stud 28(3):706–742.CrossrefGoogle Scholar
  • Cvitanic J, Malamud S (2011) Price impact and portfolio impact. J. Financial Econom. 100(1):201–225.CrossrefGoogle Scholar
  • Cvitanic J, Jouini E, Malamud S, Napp C (2011) Financial markets equilibrium with heterogeneous agents. Rev. Finance 16(1):285–321.CrossrefGoogle Scholar
  • David A (1997) Fluctuating confidence in stock markets: Implications for returns and volatility. J. Financial Quant. Anal. 32(4):427–462.CrossrefGoogle Scholar
  • David A (2008) Heterogeneous beliefs, speculation and the equity premium. J. Finance 63(1):41–83.CrossrefGoogle Scholar
  • David A, Veronesi P (2002) Option prices with uncertain fundamentals: Theory and evidence on the dynamics of implied volatilities and over-reaction in the options markets. Working paper, Olin School of Business, St. Louis, MO.Google Scholar
  • De Long JB, Summers LH, Shleifer A, Waldman R (1991) The survival of noise traders in financial markets. J. Bus. 64(1):1–19.CrossrefGoogle Scholar
  • Detemple JB (1986) Asset pricing in a production economy with incomplete information. J. Finance 41(2):383–391.CrossrefGoogle Scholar
  • Detemple JB (1991) Further results on asset pricing with incomplete information. J. Econom. Dynam. Control 15(3):425–453.CrossrefGoogle Scholar
  • Detemple J, Murthy S (1994) Intertemporal asset pricing with heterogeneous beliefs. J. Econom. Theory 62(2):294–320.CrossrefGoogle Scholar
  • Dothan MU, Feldman D (1986) Equilibrium interest rates and multiperiod bonds in a partially observable economy. J. Finance 41(2):369–382.CrossrefGoogle Scholar
  • Dumas B, Kurshev A, Uppal R (2009) Equilibrium portfolio strategies in the presence of sentiment risk and excess volatility. J. Finance 64(2):579–629.CrossrefGoogle Scholar
  • Dumas B, Lewis KK, Osambela E (2017) Differences of opinion and international equity markets. Rev. Financial Stud. 30(3):750–800.CrossrefGoogle Scholar
  • Ehling P, Gallmeyer M, Heyerdahl-Larsen C, Illeditsch P (2018) Disagreement about inflation and the yield curve. J. Financial Econom. 127(3):459–484.CrossrefGoogle Scholar
  • Engle RF (1982) Autoregressive conditional heteroscedasticity with estimates of the variance of united kingdom inflation. Econometrica 50(4):987–1007.CrossrefGoogle Scholar
  • Epstein LG, Zin SE (1989) Substitution, risk aversion, and the temporal behavior of consumption and asset returns: A theoretical framework. Econometrica 57(4):937–969.CrossrefGoogle Scholar
  • Ferson WE, Harvey CR (1991) The variation of economic risk premiums. J. Political Econom. 99(2):385–415.CrossrefGoogle Scholar
  • Gennotte G (1986) Optimal portfolio choice under incomplete information. J. Finance 41(3):733–746.CrossrefGoogle Scholar
  • Ghysels E, Plazzi A, Valkanov RI (2016) The risk-return relationship and financial crises. Working paper, University of North Carolina at Chapel Hill, Chapel Hill.CrossrefGoogle Scholar
  • Glosten LR, Jagannathan R, Runkle DE (1993) On the relation between the expected value and the volatility of the nominal excess return on stocks. J. Finance 48(5):1779–1801.CrossrefGoogle Scholar
  • Hamilton JD, Harris ES, Hatzius J, West KD (2016) The equilibrium real funds rate: Past, present and future. IMF Econom. Rev. 64(4):660–707.CrossrefGoogle Scholar
  • Harris M, Raviv A (1993) Differences of opinion make a horse race. Rev. Financial Stud. 6(3):473–506.CrossrefGoogle Scholar
  • Hirshleifer D, Li J, Yu J (2015) Asset pricing in production economies with extrapolative expectations. J. Monetary Econom. 76:87–106.CrossrefGoogle Scholar
  • Howard G, Martin R, Wilson BA (2011) Are recoveries from banking and financial crises really so different? International Finance Discussion Papers 1037, Board of Governors of the Federal Reserve System (U.S.).Google Scholar
  • Ju N, Miao J (2012) Ambiguity, learning, and asset returns. Econometrica 80(2):559–591.CrossrefGoogle Scholar
  • Judd KL (1998) Numerical Methods in Economics (MIT Press, Cambridge, MA).Google Scholar
  • Jurado K, Ludvigson SC, Ng S (2015) Measuring Uncertainty. Amer. Econom. Rev. 105(3):1177–1216.CrossrefGoogle Scholar
  • Kandel E, Pearson ND (1995) Differential interpretation of public signals and trade in speculative markets. J. Political Econom. 103(4):831–872.CrossrefGoogle Scholar
  • Kogan L, Ross SA, Wang J, Westerfield MM (2006) The price impact and survival of irrational traders. J. Finance 61(1):195–229.CrossrefGoogle Scholar
  • Kogan L, Ross SA, Wang J, Westerfield MM (2016) Market selection. J. Economic Theory 168:209–236.CrossrefGoogle Scholar
  • Li T (2007) Heterogeneous beliefs, asset prices, and volatility in a pure exchange economy. J. Econom. Dynam. Control 31(5):1697–1727.CrossrefGoogle Scholar
  • Liptser RS, Shiryaev AN (2001) Statistics of Random Processes, Vol. II (Springer, New York).Google Scholar
  • Liu J, Pan J, Wang T (2005) An equilibrium model of rare-event premia and its implication for option smirks. Rev. Financial Stud. 18(1):131–164.CrossrefGoogle Scholar
  • Lustig H, Verdelhan A (2012) Business cycle variation in the risk-return trade-off. J. Monetary Econom. 59:S35–S49.CrossrefGoogle Scholar
  • McQueen G, Vorkink K (2004) Whence GARCH? A preference-based explanation for conditional volatility. Rev. Financial Stud. 17(4):915–949.CrossrefGoogle Scholar
  • Merton RC (1973) An intertemporal capital asset pricing model. Econometrica 41(5):867–887.CrossrefGoogle Scholar
  • Newey WK, West KD (1987) A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix. Econometrica 55(3):703–708.CrossrefGoogle Scholar
  • Osambela E (2015) Differences of opinion, endogenous liquidity, and asset prices. Rev. Financial Stud. 28(7):1914–1959.CrossrefGoogle Scholar
  • Pastor L, Veronesi P (2006) Was there a Nasdaq bubble in the late 1990s? J. Financial Econom. 81(1):61–100.CrossrefGoogle Scholar
  • Patton AJ, Timmermann A (2010) Why do forecasters disagree? Lessons from the term structure of cross-sectional dispersion. J. Monetary Econom. 57(7):803–820.CrossrefGoogle Scholar
  • Reinhart CM, Rogoff KS (2009) The aftermath of financial crises. Amer. Econom. Rev. 99(2):466–472.CrossrefGoogle Scholar
  • Rossi AG, Timmermann AG (2011) What is the shape of the risk-return relation? Working paper, University of Maryland, College Park.Google Scholar
  • Rossi AG, Timmermann A (2015) Modeling covariance risk in Merton’s ICAPM. Rev. Financial Stud. 28(5):1428–1461.CrossrefGoogle Scholar
  • Scheinkman JA, Xiong W (2003) Overconfidence and speculative bubbles. J. Political Econom. 111(6):1183–1219.CrossrefGoogle Scholar
  • Schwert GW (1989) Why does stock market volatility change over time? J. Finance 44(5):1115–1153.CrossrefGoogle Scholar
  • Summers LH (2014) U.S. Economic prospects: Secular stagnation, hysteresis, and the zero lower bound. Bus. Econom. 49(2):65–73.CrossrefGoogle Scholar
  • Timmermann A (2001) Structural breaks, incomplete information, and stock prices. J. Bus. Econom. Statist. 19(3):299–314.CrossrefGoogle Scholar
  • Van Binsbergen JH, Koijen RSJ (2010) Predictive regressions: A present-value approach. J. Finance 65(4):1439–1471.CrossrefGoogle Scholar
  • Veronesi P (1999) Stock market overreaction to bad news in good times: A rational expectations equilibrium model. Rev. Financial Stud. 12(5):975–1007.CrossrefGoogle Scholar
  • Veronesi P (2000) How does information quality affect stock returns? J. Finance 55(2):807–837.CrossrefGoogle Scholar
  • Weil P (1989) The equity premium puzzle and the risk-free rate puzzle. J. Monetary Econom. 24(3):401–421.CrossrefGoogle Scholar
  • Whelan P (2014) Model disagreement and real bonds. Working paper, Copenhagen Business School, Frederiksberg, Denmark.CrossrefGoogle Scholar
  • Whitelaw RF (2000) Stock market risk and return: An equilibrium approach. Rev. Financial Stud. 13(3):521–547.CrossrefGoogle Scholar
  • Xia Y (2001) Learning about predictability: The effects of parameter uncertainty on dynamic asset allocation. J. Finance 56(1):205–246.CrossrefGoogle Scholar
  • Xiong W, Yan H (2010) Heterogeneous expectations and bond markets. Rev. Financial Stud. 23(4):1433–1466.CrossrefGoogle Scholar
  • Xiouros C, Zapatero F (2010) The representative agent of an economy with external habit formation and heterogeneous risk aversion. Rev. Financial Stud. 23(8):3017–3047.CrossrefGoogle Scholar
  • Yan H (2008) Natural selection in financial markets: Does it work? Management Sci. 54(11):1935–1950.LinkGoogle Scholar
  • Zapatero F (1998) Effects of financial innovations on market volatility when beliefs are heterogeneous. J. Econom. Dynam. Control 22(4):597–626.CrossrefGoogle Scholar
INFORMS site uses cookies to store information on your computer. Some are essential to make our site work; Others help us improve the user experience. By using this site, you consent to the placement of these cookies. Please read our Privacy Statement to learn more.