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Consensus Consumer and Intertemporal Asset Pricing with Heterogeneous Beliefs

Jouini, Elyès; Napp, Clotilde (2007), Consensus Consumer and Intertemporal Asset Pricing with Heterogeneous Beliefs, The Review of Economic Studies, 74, 4, p. 1149-1174. http://dx.doi.org/10.1111/j.1467-937X.2007.00439.x

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Jouini_40.pdf (296.8Kb)
Type
Article accepté pour publication ou publié
External document link
http://www.ifd.dauphine.fr/fr/site/ifd/les-chaires-d-entreprise/les-particuliers-face-aux-risques/les-cahiers-de-la-chaire.html
Date
2007
Journal name
The Review of Economic Studies
Volume
74
Number
4
Publisher
Blackwell Publishing
Pages
1149-1174
Publication identifier
http://dx.doi.org/10.1111/j.1467-937X.2007.00439.x
Metadata
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Author(s)
Jouini, Elyès
Napp, Clotilde cc
Abstract (EN)
The aim of the paper is to analyze the impact of heterogeneous beliefs in an otherwise standard competitive complete market economy. The construction of a consensus probability belief, as well as a consensus consumer, are shown to be valid modulo an aggregation bias, which takes the form of a discount factor. In classical cases, the consensus probability belief is a risk tolerance weighted average of the individual beliefs, and the discount factor is proportional to beliefs dispersion. This discount factor makes the heterogeneous beliefs setting fundamentally different from the homogeneous beliefs setting, and it is consistent with the interpretation of beliefs heterogeneity as a source of risk. We then use our construction to rewrite in a simple way the equilibrium characteristics (market price of risk, risk premium, risk-free rate) in a heterogeneous beliefs framework and to analyze the impact of beliefs heterogeneity. Finally, we show that it is possible to construct specific parametrizations of the heterogeneous beliefs model that lead to globally higher risk premia, lower risk-free rates, and risk premia that are lower for assets with higher belief dispersion.
Subjects / Keywords
Beliefs Heterogeneity; Consensus Consumer; Pessimism; Optimism; Risk Premium
JEL
G12 - Asset Pricing; Trading Volume; Bond Interest Rates
D41 - Perfect Competition
D83 - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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    Heterogeneous Beliefs and Asset Pricing in Discrete Time : an Analysis of Pessimism and Doubt 
    Jouini, Elyès; Napp, Clotilde (2006) Article accepté pour publication ou publié
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    Financial Markets with Heterogeneous Beliefs 
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    Aggregation of Heterogeneous Beliefs 
    Napp, Clotilde; Jouini, Elyès (2006) Article accepté pour publication ou publié
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    Jouini, Elyès; Napp, Clotilde (2001) Chapitre d'ouvrage
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