Abstract
This work presents an asset pricing model that under rational expectation equilibrium perspective shows how, depending on risk aversion and noise volatility, a risky-asset has one equilibrium price that differs in term of efficiency: an informational efficient one (similar to Campbell and Kyle (1993)), and another one where price diverges from its informational efficient level. The former Pareto dominates (is dominated by) the latter in presence of low (high) market risk perception. The estimates of the model using S&P 500 Index support the theoretical findings, and the estimated inefficient equilibrium price captures the higher risk premium and higher volatility observed during the Dot.com bubble 1995-2000.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
