The Investor Recognition Hypothesis in a Dynamic General Equilibrium: Theory and Evidence

50 Pages Posted: 24 Mar 2000

See all articles by Alex Shapiro

Alex Shapiro

New York University (NYU) - Department of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: February 2001

Abstract

This article analyzes a dynamic general equilibrium under a generalization of Merton's (1987) investor recognition hypothesis. A class of informationally constrained investors is assumed to implement only a particular trading strategy. The model implies that, all else equal, a risk premium on a less visible stock need not be higher than that on a more visible stock with a lower volatility -- contrary to results derived in a static mean-variance setting. A consumption-based capital asset pricing model augmented by the generalized investor recognition hypothesis emerges as a viable contender for explaining the cross-sectional variation in unconditional expected equity returns.

JEL Classification: G12

Suggested Citation

Shapiro, Alex, The Investor Recognition Hypothesis in a Dynamic General Equilibrium: Theory and Evidence (February 2001). Available at SSRN: https://ssrn.com/abstract=204389 or http://dx.doi.org/10.2139/ssrn.204389

Alex Shapiro (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
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New York, NY 10012-1126
United States
212-998-0362 (Phone)
212-995-4233 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~ashapiro/

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