Affine Disagreement and Asset Pricing
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Chen_Affine Disagreement.pdf
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Author(s)
Chen, Hui
Joslin, Scott Stephen Walter
Tran, Ngoc-Khanh
Date Issued
May 2010
Journal
American Economic Review
Publisher
American Economic Association
Citation
Chen, Hui, Scott Joslin, and Ngoc-Khanh Tran. “Affine Disagreement and Asset Pricing.” American Economic Review 100.2 (2010) : 522-526. © 2010 The American Economic Association
Version
Final published version
Abstract
Models of heterogeneous beliefs can generate
rich implications for trading and asset pricing
(see Suleyman Basak 2005 for a recent survey).
When studying such models, aggregation often
leads to difficulty in computing equilibrium
outcomes. In this paper, we introduce a flexible
framework to model heterogeneous beliefs
in the economy, which we refer to as “affine’’
disagreement about fundamentals. Affine processes
(see Darrel Duffie, Jun Pan, and Kenneth
Singleton 2000) are appealing as they provide
a large degree of flexibility in modeling the
conditional means, volatilities, and jumps for
various quantities of interest while remaining
analytically tractable. Our affine heterogeneous
beliefs framework allows further for stochastic
disagreement among agents about growth rates,
volatility dynamics, as well as the likelihood of
jumps and the distribution of jump sizes.
MIT Department
Sloan School of Management
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DOI of Published Version
https://doi.org/10.1257/aer.100.2.522
