Cahiers du CEREMADE |
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Unité
Mixte de Recherche du C.N.R.S. N°7534 |
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Abstract : 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
di¤erent 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
speci…c parametrizations of the heterogeneous beliefs model that lead to globally higher risk
premia and lower risk-free rates. |
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2007-39 |
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12-07-2007 |
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