Event

Asset Pricing In a World of Imperfect Foresight

  • Conférencier  Peter Bossaerts – University of Melbourne

  • Lieu

    University of Luxembourg Metz/Nancy Room 29 Boulevard J.-F. Kennedy L-1855 Luxembourg

    LU

  • Thème(s)
    Finance

We consider a canonical model of asset pricing, where agents with quadratic preferences are allowed to re-trade a limited set of securities for a number of periods, after

which these securities expire, and agents consume their liquidation values. A key assumption in this model is that agents have perfect foresight: they correctly predict

prices in all future contingencies. We show that, under myopia, prices generically are as if agents had perfect foresight. Yet their choices are wrong,” because agents ignore

that they can re-trade. In an experiment, prices and choices are found to be as predicted by myopia.