Incomplete Information and Heterogeneous Beliefs in Continuous-time Finance

By:

Alexandre C. Ziegler

Format:

Hardback

Series:

Springer Finance

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Description

This book considers the impact of incomplete information and heterogeneous beliefs on investor's optimal portfolio and consumption behavior and equilibrium asset prices. After a brief review of the existing incomplete information literature, the effect of incomplete information on investors' exptected utility, risky asset prices, and interest rates is described. It is demonstrated that increasing the quality of investors' information need not increase their expected utility and the prices of risky assets. The impact of heterogeneous beliefs on investors' portfolio and consumption behavior and equilibrium asset prices is shown to be non-trivial. Heterogeneous beliefs can explain a number of observed phenomena, such as the fact that equilibrium state-price densities are not log-normal, the "smile" in option implied volatility, and the patterns of implied risk aversion reported recently in the literature. It is also demonstrated that financial markets in general do not aggregate information efficiently, a fact that can explain the equity premium puzzle.

Release date Australia

February 26th, 2003

Author

Alexandre C. Ziegler

Audiences

Postgraduate, Research & Scholarly
Professional & Vocational
Undergraduate

Illustrations

XIII, 198 p.

Pages

198

Series

Springer Finance

Dimensions

156x234x14

ISBN-13

9783540003441

Product ID

5809867

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Incomplete Information and Heterogeneous Beliefs in Continuous-time Finance

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