On Equilibrium Pricing Under Parameter Uncertainty

J. OF FINANCIAL AND QUANTITATIVE ANALYSIS, September 1995

Posted: 9 Jul 1998

See all articles by Jeffrey L. Coles

Jeffrey L. Coles

University of Utah - Department of Finance

Uri Loewenstein

University of Utah - Department of Finance

José R. Suay

affiliation not provided to SSRN

Abstract

Prior theoretical work on estimation risk generally has been restricted to single-period, returns-based models in which the investor must estimate the vector of expected returns but the covariance matrix is known. This paper extends the literature on parameter uncertainty in several ways. First, we analyze asymmetric parameter uncertainty in a model based on payoffs. Second, we explore the effects of both symmetric and asymmetric estimation risk on equilibrium asset prices when the covariance matrix for payoffs must also be estimated. Finally, we investigate the effects on equilibrium of asymmetric parameter uncertainty in a simple multi period model.

JEL Classification: D58

Suggested Citation

Coles, Jeffrey L. and Loewenstein, Uri and Suay, José R., On Equilibrium Pricing Under Parameter Uncertainty. J. OF FINANCIAL AND QUANTITATIVE ANALYSIS, September 1995, Available at SSRN: https://ssrn.com/abstract=7170

Jeffrey L. Coles

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-587-9093 (Phone)

Uri Loewenstein (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-581-4419 (Phone)
801-581-7214 (Fax)

José R. Suay

affiliation not provided to SSRN

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