A heterogeneous Capital Asset Pricing Model (CAPM) is proposed, where agents are assumed to form optimal portfolios based upon their heterogeneous beliefs about conditional means and covariances of the risky asset returns. In a repeated one-period setup, a dynamic multi-asset framework is developed, which allows to characterize exactly the relationships between 'market belief' in equilibrium and heterogeneous beliefs, between the market risk premium of each risky asset and its beta coefficient, and derive the dynamics of beta coefficients and market equilibrium prices.
A Framework for CAPM with Heterogeneous Beliefs
DIECI, ROBERTO;
2010
Abstract
A heterogeneous Capital Asset Pricing Model (CAPM) is proposed, where agents are assumed to form optimal portfolios based upon their heterogeneous beliefs about conditional means and covariances of the risky asset returns. In a repeated one-period setup, a dynamic multi-asset framework is developed, which allows to characterize exactly the relationships between 'market belief' in equilibrium and heterogeneous beliefs, between the market risk premium of each risky asset and its beta coefficient, and derive the dynamics of beta coefficients and market equilibrium prices.File in questo prodotto:
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