Why Disagreement May Not Matter (much) for Asset Prices
16 Pages Posted: 5 Jun 2008 Last revised: 15 Jun 2013
Date Written: September 9, 2008
Abstract
A simple consumption-based two-period model is used to study the (theoretical) effects of disagreement on asset prices. Analytical and numerical results show that individual uncertainty has a much larger effect on risk premia than disagreement if (i) the risk aversion is reasonably high and (ii) individual uncertainty is not much smaller than disagreement. Evidence from survey data on beliefs about output growth suggests that the latter is more than satisfied.
Keywords: riskfree rate, implied volatility, Survey of Professional Forecasters
JEL Classification: C42, G12, E44
Suggested Citation: Suggested Citation
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