Diverse beliefs, survival and the market price of risk

Timothy Cogley, Thomas Sargent

    Research output: Contribution to journalArticle

    Abstract

    We study prices and allocations in a complete-markets, pure-exchange economy in which there are two types of agents with different priors over infinite sequences of the aggregate endowment. Aggregate consumption growth evolves exogenously according to a two-state Markov process. The economy has two types of agents, one that learns about transition probabilities and another that knows them. We examine allocations, the market price of risk and the rate at which asset prices converge to values that would be computed under the assumption that all agents know the transition probabilities.

    Original languageEnglish (US)
    Pages (from-to)354-376
    Number of pages23
    JournalEconomic Journal
    Volume119
    Issue number536
    DOIs
    StatePublished - 2009

    Fingerprint

    Market price of risk
    Transition probability
    Exchange economy
    Aggregate consumption
    Asset prices
    Consumption growth
    Markov process
    Complete markets
    Endowments

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Diverse beliefs, survival and the market price of risk. / Cogley, Timothy; Sargent, Thomas.

    In: Economic Journal, Vol. 119, No. 536, 2009, p. 354-376.

    Research output: Contribution to journalArticle

    Cogley, Timothy ; Sargent, Thomas. / Diverse beliefs, survival and the market price of risk. In: Economic Journal. 2009 ; Vol. 119, No. 536. pp. 354-376.
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