Self-Fulfilling Risk Panics: An Expected Utility Framework / Jess Benhabib, Xuewen Liu, Pengfei Wang.

Format:

Book

Author/Creator:

Benhabib, Jess.

Contributor:

National Bureau of Economic Research.

Liu, Xuewen.

Wang, Pengfei.

Series:

Working Paper Series (National Bureau of Economic Research) no. w28284.

NBER working paper series no. w28284

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

Even if an asset has no fundamental uncertainty with a constant dividend process, a stochastic sentiment-driven equilibrium for the asset price exists besides the well-known fundamental equilibrium. Our paper constructs such sentiment-driven equilibria under general utility functions within an OLG structure. Our paper further shows that the existence of sentiment-driven equilibria is robust in a standard infinite-period model as long as the pricing kernel is affected by the asset price.

Notes:

Print version record

December 2020.