Cahiers du CEREMADE

Unité Mixte de Recherche du C.N.R.S. N°7534
Abstract : The aim of the paper is to analyze the impact of heterogeneous beliefs in an otherwise standard complete markets discrete time economy. The construction of a consensus belief is shown to be valid modulo a predictable aggregation bias, which takes the form of a discount factor. We use our construction of a consensus belief to investigate the impact of beliefs heterogeneity on the CCAPM and on the expression of the risk free rate. We focus on the pessimism/doubt of the consensus consumer and we study their impact on the equilibrium characteristics. We finally analyze how doubt and pessimism at the aggregate level result from doubt and pessimism at the individual level. We show that it is possible to obtain a higher market price of risk, and lower returns for assets with higher beliefs dispersion which is interesting in light of the risk premium puzzle (Mehra-Prescott, 1985) and of the findings of Diether et al. (2002).
Heterogeneous beliefs and asset pricing in discrete time: an analysis of pessimism and doubt
JOUINI Elyès, NAPP Clotilde
Université de PARIS - DAUPHINE
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