Survival and Long-Run Dynamics with Heterogeneous Beliefs under Recursive Preferences

2020 ◽  
Vol 128 (1) ◽  
pp. 206-251 ◽  
Author(s):  
Jaroslav Borovička
Keyword(s):  
Heterogeneous Beliefs ◽  
Recursive Preferences ◽  
Long Run

scholarly journals Price Reaction to Information with Heterogeneous Beliefs and Wealth Effects: Underreaction, Momentum, and Reversal

2015 ◽  
Vol 105 (1) ◽  
pp. 01-34 ◽  
Author(s):  
Marco Ottaviani ◽  
Peter Norman Sørensen
Keyword(s):  
Asset Prices ◽  
Competitive Equilibrium ◽  
Equilibrium Price ◽  
Heterogeneous Beliefs ◽  
Wealth Effects ◽  
Risk Averse ◽  
Prior Beliefs ◽  
Initial Momentum ◽  
Dynamic Setting ◽  
Long Run

This paper analyzes how asset prices in a binary market react to information when traders have heterogeneous prior beliefs. We show that the competitive equilibrium price underreacts to information when there is a bound to the amount of money traders are allowed to invest. Underreaction is more pronounced when prior beliefs are more heterogeneous. Even in the absence of exogenous bounds on the amount that traders can invest, prices underreact to information provided that traders become less risk averse as their wealth increases. In a dynamic setting, underreaction results in initial momentum and then reversal in the long run. (JEL D83, D84, G11, G12, G14)

scholarly journals Measuring Long Run Risks for Brazil

2019 ◽  
Vol 39 (1) ◽  
Author(s):  
Caio Almeida ◽  
Diego Brandao
Keyword(s):  
Temporal Structure ◽  
Risk Premia ◽  
Risk Compensation ◽  
Market Returns ◽  
Power Utility ◽  
Recursive Preferences ◽  
Aggregate Consumption ◽  
Long Run ◽  
Permanent Shocks ◽  
Long Run Risks

We study the temporal structure of risk prices, risk exposures and expected market returns for Brazil assuming the economy follows a long run risks model. The model consists on an endowment economy where aggregate consumption and dividend growth contain predictable components, and a representative agent has Epstein-Zin recursive preferences with CES specification. We show that aggregate consumption in Brazil is sufficiently predictable to generate risk premia associated with Epstein-Zin preferences in excess of traditional compensations induced by power utility. Moreover, risk compensation is dominated by permanent shocks both in the short and long run, as Epstein-Zin preferences mitigate the price of temporary shocks' risk.

scholarly journals The Long-Run Behavior of Consumption and Wealth Dynamics in Complete Financial Market with Heterogeneous Investors

2014 ◽  
Vol 2014 ◽  
pp. 1-16
Author(s):  
Darong Dai
Keyword(s):  
Financial Market ◽  
Heterogeneous Beliefs ◽  
Wealth Accumulation ◽  
Consumption Tax ◽  
Discount Rates ◽  
Intertemporal Substitution ◽  
Uniform Topology ◽  
Long Run ◽  
Time Discount ◽  
Wealth Tax

A type of complete financial market with finite and countable heterogeneous investors, that is, investors equipped with heterogeneous elasticities of intertemporal substitution, heterogeneous time discount rates, and also heterogeneous beliefs, is constructed and two main results are established. First, long-run behaviors, specifically golden rules or modified golden rules, about consumption path and wealth accumulation are investigated under uncertainty and in the sense of uniform topology. Second, inefficacy of temporary taxation policies, which are chosen to be consumption tax and wealth tax, is confirmed in the current financial market.

Dividends versus Stock Repurchases and Long-Run Stock Returns under Heterogeneous Beliefs

2021 ◽  
Author(s):  
Onur Bayar ◽  
Thomas J Chemmanur ◽  
Mark H Liu
Keyword(s):  
Stock Returns ◽  
Project Success ◽  
Heterogeneous Beliefs ◽  
Stock Repurchases ◽  
External Financing ◽  
Stock Repurchase ◽  
Dividend Payment ◽  
Long Run

Abstract We analyze a firm’s choice between dividends and stock repurchases under heterogeneous beliefs. Firm insiders, owning a certain fraction of equity, choose between paying out cash available through a dividend payment or a stock repurchase, and simultaneously choose the scale of the firm’s project. Outsiders have heterogeneous beliefs about project success and may disagree with insiders. In equilibrium, the firm distributes value through dividends alone, through a repurchase alone, or through a combination of both. In some situations, the firm may raise external financing to fund its payout. We also develop results for long-run stock returns following dividends and repurchases.

scholarly journals Optimists and Pessimists in (In)Complete Markets

2019 ◽  
Vol 55 (8) ◽  
pp. 2466-2499 ◽  
Author(s):  
Nicole Branger ◽  
Patrick Konermann ◽  
Christian Schlag
Keyword(s):  
Asset Pricing ◽  
Risk Model ◽  
Complete Markets ◽  
Jump Risk ◽  
Recursive Preferences ◽  
Aggregate Consumption ◽  
Market Incompleteness ◽  
Long Run ◽  
Insurance Product ◽  
Long Run Risk

We study the effects of market incompleteness on speculation, investor survival, and asset pricing moments when investors disagree about the likelihood of jumps and have recursive preferences. We consider two models. In a model with jumps in aggregate consumption, incompleteness barely matters because the consumption claim resembles an insurance product against jump risk and effectively reproduces approximate spanning. In a long-run risk model with jumps in the long-run growth rate, market incompleteness affects speculation and investor survival. Jump and diffusive risks are more balanced regarding their importance, and therefore the consumption claim cannot reproduce approximate spanning.

Sign in / Sign up

Export Citation Format

Share Document