Waves of Optimism and Pessimism
We consider a simple consumption-based asset pricing model with two types of
investors who have access to the same observations but who use different
updating rules to infer information about the growth state of the economy.
In particular, we consider an optimistic and pessimistic group of agents who
use distorted Bayesian updating rules. The aim of the work is to understand
to what extent the interaction of such distorted Bayesian rules can explain
low and medium frequency characterization of dynamics movements observed in
the price dividend ratios and can give rise endogenously to waves of
pessimism and optimism which are associated with sustained asset price booms
and busts. The analysis shows that heterogeneity in ambiguity
loving/aversion preferences appears to be an important factor to capture
medium-frequency waves observed on asset prices.
PATARACCHIA Beatrice;
2013-05-31
Publications Office of the European Union
JRC81165
978-92-79-29720-5,
1831-9424,
EUR 25954,
OP LB-NA-25954-EN-N,
https://publications.jrc.ec.europa.eu/repository/handle/JRC81165,
10.2788/89298,
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