Higher Order Expectations in Asset Pricing

Research, Preprint English OPEN
Bacchetta, Philippe; van Wincoop, Eric;
  • Publisher: Gerzensee: Swiss National Bank, Study Center Gerzensee
  • Subject: CAPM | Zinsstruktur | Keynesianismus | Asset pricing; Beauty contest; Higher order beliefs | Erwartungsbildung | Theorie
    • jel: jel:G0 | jel:G1 | jel:D8
      ddc: ddc:330
    arxiv: Computer Science::Computer Science and Game Theory

We examine formally Keynes' idea that higher order beliefs can drive a wedge between an asset price and its fundamental value based on expected future payoffs. Higher order expectations add an additional term to a standard asset pricing equation. We call this the higher... View more
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