Sentimental Recovery

49 Pages Posted: 31 Oct 2019 Last revised: 24 Nov 2020

See all articles by Altan Pazarbasi

Altan Pazarbasi

Frankfurt School of Finance & Management

Paul Schneider

University of Lugano - Institute of Finance; Swiss Finance Institute

Grigory Vilkov

Frankfurt School of Finance & Management

Date Written: October 31, 2019

Abstract

We investigate the market-compatible degree of agent heterogeneity by identifying and analyzing the full range of conditional beliefs consistent with observed asset prices and good-deal bounds. Our methodology neither makes assumptions on underlying processes nor does it use survey data. It can be used in any arbitrage-free market. We apply it to S&P500 and VIX derivatives, both jointly and separately. Recovered dispersion of beliefs crucially depends on the degree of market incompleteness and maximally allowed Sharpe ratios; it is related to trading activity and measures of risk in financial markets, as well as professional macroeconomic survey dispersion.

Keywords: Recovery, sentiment, market views, agent heterogeneity, volatility trading, market spanning, disagreement, beliefs

JEL Classification: G11, G12, G13, G17

Suggested Citation

Pazarbasi, Altan and Schneider, Paul Georg and Vilkov, Grigory, Sentimental Recovery (October 31, 2019). Swiss Finance Institute Research Paper No. 19-57, Available at SSRN: https://ssrn.com/abstract=3478587 or http://dx.doi.org/10.2139/ssrn.3478587

Altan Pazarbasi

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Paul Georg Schneider

University of Lugano - Institute of Finance ( email )

Via Buffi 13
CH-6900 Lugano
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Grigory Vilkov (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

HOME PAGE: http://www.vilkov.net

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