IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-01869548.html
   My bibliography  Save this paper

Do markets prove pessimists right ?

Author

Listed:
  • Jürgen Eichberger

    (Department of Economics - Universität Heidelberg [Heidelberg] = Heidelberg University)

  • Ani Guerdjikova

    (GAEL - Laboratoire d'Economie Appliquée de Grenoble - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UGA [2016-2019] - Université Grenoble Alpes [2016-2019])

Abstract

We study how ambiguity and ambiguity attitudes affect asset prices when consumers form their expectations based on past observations. In an overlapping generations economy with risk‐neutral yet ambiguity‐sensitive consumers, we describe limiting asset prices depending on the proportion of investor types. We then study the evolution of consumer‐type shares. With long memory, the market does not select for ambiguity neutrality. Whenever perceived ambiguity is sufficiently small, but positive, only pessimists survive and determine prices in the limit. With one‐period memory, equilibrium prices are determined by Bayesians. Yet, the average price of the risky asset is lower than its fundamental value.

Suggested Citation

  • Jürgen Eichberger & Ani Guerdjikova, 2018. "Do markets prove pessimists right ?," Post-Print hal-01869548, HAL.
  • Handle: RePEc:hal:journl:hal-01869548
    DOI: 10.1111/iere.12336
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ani Guerdjikova & John Quiggin, 2018. "Heuristic Modes of Decision Making and Survival in Financial Markets," Post-Print hal-02086267, HAL.
    2. Burkhard C. Schipper, 2021. "The evolutionary stability of optimism, pessimism, and complete ignorance," Theory and Decision, Springer, vol. 90(3), pages 417-454, May.
    3. Péter Bayer & Ani Guerdjikova, 2020. "Optimism leads to optimality: Ambiguity in network formation," Working Papers hal-03005107, HAL.
    4. Ani Guerdjikova & John Quiggin, 2018. "Intertemporal Portfolio Choice with Incorrect Beliefs and Aversion to Surprise," Post-Print hal-02086151, HAL.
    5. Adam Dominiak & Ani Guerdjikova, 2021. "Special Issue on Ambiguity and Strategic Interactions in Honor of Jürgen Eichberger," Theory and Decision, Springer, vol. 90(3), pages 301-307, May.
    6. Dominiak, Adam & Eichberger, Jürgen, 2021. "Games in context: Equilibrium under ambiguity for belief functions," Games and Economic Behavior, Elsevier, vol. 128(C), pages 125-159.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-01869548. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.