Subjective Expectations and Asset-Return Puzzles
نویسنده
چکیده
Three major puzzles, described later in this section, have captured the attention of macroeconomic finance: the equity-premium, riskfreerate and equity-volatility puzzles. A common strand of these three asset-return puzzles is that markets are behaving as if investors fear some unknown hidden randomness that isn’t obvious from the data. People are acting in the aggregate like there is much more marginal-utility–weighted subjective variability about future growth rates than past observations seem to support. This paper offers a single unified theory for all three macro-finance puzzles based on the idea that what is learnable about the future stochastic consumption-growth process from any number of past empirical observations must fall far short of full structural knowledge. The main findings can be summarized as follows: (a) the process of discovering structural parameters has significant economic consequences, with parameters controlling the spread of the Subjective Expectations and Asset-Return Puzzles
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