|
|
|
|
||||
|
||||
Asset Prices in a Time Series Model with Perpetually Disparately Informed, Competitive TradersKenneth KasaSimon Fraser University (SFU) - Department of Economics Todd B. WalkerIndiana University Bloomington - Department of Economics Charles H. WhitemanUniversity of Iowa - Henry B. Tippie College of Business - Department of Economics September 22, 2006 CAEPR Working Paper No. 2006-010 Abstract: This paper develops a dynamic asset pricing model with persistent heterogeneous beliefs. The model features competitive traders who receive idiosyncratic signals about an underlying fundamentals process. We adapt Futia's (1981) frequency domain methods to derive conditions on the fundamentals that guarantee noninvertibility of the mapping between observed market data and the underlying shocks to agents' information sets. When these conditions are satisfied, agents must 'forecast the forecasts of others'. The paper provides an explicit analytical characterization of the resulting higher-order belief dynamics. These additional dynamics can explain apparent violations of variance bounds and rejections of cross-equation restrictions.
Number of Pages in PDF File: 34 Keywords: Asymmetric Information, Blaschke Factors JEL Classification: G12, D82 working papers seriesDate posted: September 26, 2006Suggested CitationContact Information
|
|
|||||||||||||||||||||||||||||||
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
FAQ
Terms of Use
Privacy Policy
Copyright
This page was processed by apollo4 in 0.328 seconds
