Identifying Beliefs from Asset Prices

69 Pages Posted: 17 Jun 2019 Last revised: 27 Apr 2023

See all articles by Anisha Ghosh

Anisha Ghosh

McGill University

Guillaume Roussellet

McGill University - Desautels Faculty of Management

Date Written: April 27, 2023


We propose a novel methodology to identify investors’ subjective beliefs from asset prices and survey forecasts. Our approach recovers price-consistent beliefs – the conditional distribution of macroeconomic and financial variables satisfying the Euler equations for a cross-section of assets, given an SDF and conditioning set – while producing unbiased survey forecast errors. Our procedure is agnostic about the DGP or investor rationality. Subjective beliefs about consumption growth are indicative of investor exuberance, stemming from overestimation of mean and underestimation of negative skewness. Beliefs about the stock market and its volatility are countercyclical and correlate with institutional investors’ expectations and VIX, respectively.

Keywords: Rational Expectations, Subjective Beliefs, Survey Forecasts, Pricing Kernel, Conditioning Set, Relative Entropy Minimization.

JEL Classification: C51, E3, E70, G12, G14, G40

Suggested Citation

Ghosh, Anisha and Roussellet, Guillaume, Identifying Beliefs from Asset Prices (April 27, 2023). Proceedings of Paris December 2019 Finance Meeting EUROFIDAI - ESSEC, Available at SSRN: or

Anisha Ghosh (Contact Author)

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5

Guillaume Roussellet

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1

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