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Forecasting the forecasts of others: implications for asset pricing

Makarov, Igor and Rytchkov, Oleg (2012) Forecasting the forecasts of others: implications for asset pricing. Journal of Economic Theory, 147 (3). pp. 941-966. ISSN 1095-7235

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Identification Number: 10.1016/j.jet.2012.01.020

Abstract

We study the properties of rational expectation equilibria (REE) in dynamic asset pricing models with heterogeneously informed agents. We show that under mild conditions the state space of such models in REE can be infinite dimensional. This result indicates that the domain of analytically tractable dynamic models with asymmetric information is severely restricted. We also demonstrate that even though the serial correlation of returns is predominantly determined by the dynamics of stochastic equity supply, under certain circumstances asymmetric information can generate positive autocorrelation of returns.

Item Type: Article
Official URL: http://www.sciencedirect.com/science/journal/00220...
Additional Information: © 2012 Elsevier Inc.
Divisions: Finance
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
JEL classification: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency; Event Studies
Sets: Departments > Finance
Collections > Economists Online
Date Deposited: 19 Aug 2013 07:56
Last Modified: 08 Oct 2019 11:19
URI: http://eprints.lse.ac.uk/id/eprint/51757

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