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Aggregation of Heterogeneous Beliefs

Napp, Clotilde; Jouini, Elyès (2006), Aggregation of Heterogeneous Beliefs, Journal of Mathematical Economics, 42, 6, p. 752-770. http://dx.doi.org/10.1016/j.jmateco.2006.02.001

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Type
Article accepté pour publication ou publié
Date
2006
Journal name
Journal of Mathematical Economics
Volume
42
Number
6
Publisher
Elsevier
Pages
752-770
Publication identifier
http://dx.doi.org/10.1016/j.jmateco.2006.02.001
Metadata
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Author(s)
Napp, Clotilde cc
Jouini, Elyès
Abstract (EN)
This paper is a generalization of [Calvet, L., Grandmont, J.-M., Lemaire, I., 2002. Aggregation of heterogenous beliefs and asset pricing in complete financial markets. Working paper] to a dynamic setting. We propose a method to aggregate heterogeneous individual probability beliefs, in dynamic and complete asset markets, into a single consensus probability belief. This consensus probability belief, if commonly shared by all investors, generates the same equilibrium prices as well as the same individual marginal valuation as in the original heterogeneous probability beliefs setting. As in [Calvet, L., Grandmont, J.-M., Lemaire, I., 2002. Aggregation of heterogenous beliefs and asset pricing in complete financial markets. Working paper], the construction stands on a fictitious adjustment of the market portfolio. The adjustment process reflects the aggregation bias due to the diversity of beliefs. In this setting, the construction of a representative agent is shown to be also valid.
Subjects / Keywords
Representative agents; Aggregation of belief; Consensus belief; Heterogeneous beliefs
JEL
G12 - Asset Pricing; Trading Volume; Bond Interest Rates
D83 - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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