An Exploration of the Effects of Pessimism and Doubt on Asset Returns

Loading...
Thumbnail Image
Penn collection
Finance Papers
Degree type
Discipline
Subject
Econometrics
Finance and Financial Management
Funder
Grant number
License
Copyright date
Distributor
Related resources
Author
Abel, Andrew B
Contributor
Abstract

The subjective distribution of growth rates of aggregate consumption is characterized by pessimism if it is first-order stochastically dominated by the objective distribution. Uniform pessimism is a leftward translation of the objective distribution of the logarithm of the growth rate. The subjective distribution is characterized by doubt if it is a mean-preserving spread of the objective distribution. Pessimism and doubt both reduce the riskfree rate and thus can help resolve the riskfree rate puzzle. Uniform pessimism and doubt both increase the average equity premium and thus can help resolve the equity premium puzzle.

Advisor
Date Range for Data Collection (Start Date)
Date Range for Data Collection (End Date)
Digital Object Identifier
Series name and number
Publication date
2002-01-01
Journal title
Journal of Economic Dynamics and Control26
Volume number
Issue number
Publisher
Publisher DOI
Journal Issue
Comments
Recommended citation
Collection