'Nobody is perfect': asset pricing and long-run survival when heterogeneous investors exhibit different kinds of filtering errors

  • n this paper we analyze an economy with two heterogeneous investors who both exhibit misspecified filtering models for the unobservable expected growth rate of the aggregated dividend. A key result of our analysis with respect to long-run investor survival is that there are degrees of model misspecification on the part of one investor for which there is no compensation by the other investor's deficiency. The main finding with respect to the asset pricing properties of our model is that the two dimensions of asset pricing and survival are basically independent. In scenarios when the investors are more similar with respect to their expected consumption shares, return volatilities can nevertheless be higher than in cases when they are very different.

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Author:Nicole BrangerORCiDGND, Christian Schlag, Lue Wu
Parent Title (German):SAFE working paper series ; No. 114
Series (Serial Number):SAFE working paper series (114)
Place of publication:Frankfurt am Main
Document Type:Working Paper
Date of Publication (online):2015/08/12
Date of first Publication:2015/08/12
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2015/12/08
Tag:Asset Allocation; Different Beliefs; General Equilibrium; Learning; Over-Confidence
Page Number:69
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht