Consensus Consumer And Intertemporal Asset Pricing With Heterogeneous Beliefs PDF Download

"The thesis includes two essays on asset pricing. In the first essay, "Asset Pricing in a Monetary Economy with Heterogeneous Beliefs", we shed new light on the role of monetary policy in asset pricing by focusing on the case where investors have heterogeneous expectations about future monetary policy. Under heterogeneity in beliefs, investors place bets against each other on the evolution of money supply, and as a result, the sharing of wealth in the economy evolves stochastically over time, making money non-neutral. Employing a continuous-time, general equilibrium model, we establish these fluctuations to be rich in implications, in that they majorly affect the equilibrium prices of all assets, as well as inflation. In particular, we find that the stock market volatility may be significantly increased by the heterogeneity in beliefs, a conclusion supported by our empirical analysis. The second essay is titled with " Asset Pricing and Welfare Analysis with Bounded Rational Investors". Motivated by the fact that investors have limited ability and insufficient knowledge to process information, I model investors' bounded-rational behavior in processing information and study its implications on asset pricing. Bounded rational investors perceive "correlated" information (which consists of news that is correlated with fundamentals, but provides no information on them) as "fundamental" information. This generates "bounded rational risk". Asset prices and volatilities of asset returns are derived. Specially, the equity premium and the stock volatility are raised under some conditions. I also analyze the welfare impact of bounded rationality." --