Self-Fulfilling Risk Panics: An Expected Utility Framework

26 Pages Posted: 21 Jan 2021

See all articles by Jess Benhabib

Jess Benhabib

New York University - Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

Xuewen Liu

University of Hong Kong (HKU) - Finance Area, Faculty of Business and Economics

Pengfei Wang

HKUST, Department of Economics; Hong Kong University of Science & Technology (HKUST) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: December 19, 2020

Abstract

Even if an asset has no fundamental uncertainty with a constant dividend process, a stochastic sentiment-driven equilibrium for the asset price exists besides the well-known unique fundamental equilibrium. Our paper constructs such sentiment-driven equilibria under general utility functions within an OLG structure. Our paper further shows that the existence of sentiment-driven equilibria is robust in a standard infinite-period model as long as the pricing kernel is affected by the asset price.

JEL Classification: E44, G01, G11, G12

Suggested Citation

Benhabib, Jess and Liu, Xuewen and Wang, Pengfei, Self-Fulfilling Risk Panics: An Expected Utility Framework (December 19, 2020). NYU Stern School of Business Forthcoming, Available at SSRN: https://ssrn.com/abstract=3751813 or http://dx.doi.org/10.2139/ssrn.3751813

Jess Benhabib

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
7th Floor
New York, NY 10003
United States
212-998-8971 (Phone)
212-995-4186 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Xuewen Liu

University of Hong Kong (HKU) - Finance Area, Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

HOME PAGE: http://web.hku.hk/~xuewenl/

Pengfei Wang (Contact Author)

HKUST, Department of Economics ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

Clear Water Bay
Kowloon, Hong Kong
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
37
Abstract Views
197
PlumX Metrics