English   español  
Please use this identifier to cite or link to this item: http://hdl.handle.net/10261/57877
Share/Impact:
Statistics
logo share SHARE logo core CORE   Add this article to your Mendeley library MendeleyBASE

Visualizar otros formatos: MARC | Dublin Core | RDF | ORE | MODS | METS | DIDL
Exportar a otros formatos:

Title

Internal rationality, imperfect market knowledge and asset prices

AuthorsMarcet, Albert ; Adam, Klaus
Issue Date2011
PublisherElsevier
CitationJournal of Economic Theory 146(3): 1224-1252 (2011)
AbstractWe present a decision theoretic framework in which agents are learning about market behavior and that provides microfoundations for models of adaptive learning. Agents are ‘internally rational’, i.e., maximize discounted expected utility under uncertainty given dynamically consistent subjective beliefs about the future, but agents may not be ‘externally rational’, i.e., may not know the true stochastic process for payoff relevant variables beyond their control. This includes future market outcomes and fundamentals. We apply this approach to a simple asset pricing model and show that the equilibrium stock price is then determined by investorsʼ expectations of the price and dividend in the next period, rather than by expectations of the discounted sum of dividends. As a result, learning about price behavior affects market outcomes, while learning about the discounted sum of dividends is irrelevant for equilibrium prices. Stock prices equal the discounted sum of dividends only after making very strong assumptions about agentsʼ market knowledge.
Publisher version (URL)http://dx.doi.org/10.1016/j.jet.2010.11.003
URIhttp://hdl.handle.net/10261/57877
DOI10.1016/j.jet.2010.11.003
Identifiersdoi: 10.1016/j.jet.2010.11.003
issn: 0022-0531
Appears in Collections:(IAE) Artículos
Files in This Item:
File Description SizeFormat 
InternalRationality.pdf270,31 kBAdobe PDFThumbnail
View/Open
Show full item record
Review this work
 

Related articles:


WARNING: Items in Digital.CSIC are protected by copyright, with all rights reserved, unless otherwise indicated.