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Article dans une revue Review of Finance Année : 2010

Unbiased Disagreement in financial markets, waves of pessimism and the risk return tradeoff

Résumé

Can investors with irrational beliefs be neglected as long as they are rational on average ? Do their trades cancel out with no consequences on prices, as implicitly assumed by traditional models? We consider a model with irrational investors, who are rational on average. We obtain waves of pessimism and optimism that lead to countercyclical market prices of risk and procyclical risk-free rates. The variance of the state price density is greatly increased. The long run risk-return relation is mod- i…ed; in particular, the long run market price of risk might be higher than both the instantaneous and the rational ones.
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Dates et versions

halshs-00488481, version 1 (02-06-2010)

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  • HAL Id : halshs-00488481 , version 1

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Elyès Jouini, Clotilde Napp. Unbiased Disagreement in financial markets, waves of pessimism and the risk return tradeoff. Review of Finance, 2010, (to appear). ⟨halshs-00488481⟩
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