Extrapolative asset pricing

• 成果类型: Article
• 署名作者: Li, Kai; Liu, Jun
• 署名单位: Southwestern University of Finance & Economics - China; Macquarie University; University of California System; University of California San Diego
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2023.105651
• 发表日期: 2023
• 关键词: Return extrapolation; Fundamental extrapolation; Asset pricing puzzles; momentum; Sentiment

摘要

This paper studies implications of return extrapolation in a consumption-based asset pricing model. We show that return extrapolation has strong implications for the pricing kernel. The time variation in the agen-t's return expectations is mainly reflected in the short rate and little in return volatility and equity premium. Return extrapolation causes return volatility and equity premium to be lower than the rational counter-parts. In addition to the risk premium, the equity premium can include a sentiment premium that is due to dividend expectation bias rather than return extrapolation bias. Thus, time-varying dividend (rather than re-turn) expectation bias helps produce a volatile equity premium. These results show that return extrapolation exacerbates asset pricing puzzles and fundamental extrapolation helps resolve puzzles. Crown Copyright (c) 2023 Published by Elsevier Inc. All rights reserved.