Properties of equilibrium asset prices under alternative learning schemes
By: by Massimo Guidolin and Allan Timmermann.
Contributors: Timmermann, Allan.; Federal Reserve Bank of St. Louis.
Series: Working paper ;; 2005-009A; Working paper (Federal Reserve Bank of St. Louis : Online) ;; 2005-009A.
Publisher: Federal Reserve Bank of St. Louis
Published: 2005
Place of publication: [St. Louis, Mo.]
Language: eng
Format: Electronic resource
Subjects: Assets (Accounting) -- Prices -- Econometric models.
Description: "This paper characterizes equilibrium asset prices under adaptive, rational and Bayesian learning schemes in a model where dividends evolve on a binomial lattice.  The properties of equilibrium stock and bond prices under learning are shown to differ significantly compared with prices under full information rational expectations.  Learning causes the discount factor and risk-neutral probability measure to become path-dependent and introduces serial correlation and volatility clustering in stock returns.  We also derive conditions under which the expected value and volatility of stock prices will be higher under learning than under full information.  Finally, we derive restrictions on prior beliefs under which Bayesian and rational learning lead to identical prices"--Federal Reserve Bank of St. Louis web site.
Notes: Includes bibliographical references.
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