Lock-in of extrapolative expectations in an asset pricing model

Macroeconomic Dynamics

Volumn 10, Issue 3, 2006, Pages 317-348

  Lansing, Kevin J ^a  

^a FEDERAL RESERVE BANK OF SAN FRANCISCO   (United States)

Author keywords

Asset Pricing; Bubbles; Distorted Beliefs; Expectations

Indexed keywords

EID: 33646383644     PISSN: 13651005     EISSN: 14698056     Source Type: Journal    
DOI: 10.1017/s1365100506050231     Document Type: Article

References (62)

1. Abel, A.B. (2002) An exploration of the effects of pessimism and doubt on asset returns. Journal of Economic Dynamics and Control 26, 1075-1092.
2. Abreu, D. and M.K. Brunnermeier (2003) Bubbles and crashes. Econometrica 71, 173-204.
3. Adam, K. (2005a) Experimental Evidence on the Persistence of Output and Inflation. European Central Bank Working Paper No. 492.
4. Adam, K. (2005b) Learning to forecast and cyclical behavior of output and inflation. Macroeconomic Dynamics 9, 1-27.
5. Arbarbanell, J.S. and V.L. Bernard (1992) Tests of analysts' over-reaction/under-reaction to earnings information as an explanation for anomalous stock price behavior. Journal of Finance 47, 1181-1207.
6. Arthur, W.B. (1989) Competing technologies, increasing returns, and lock-in by historical small events. Economic Journal 99, 116-131.
7. Barberis, N., A. Shleifer, and R.W. Vishny (1998) A model of investor sentiment. Journal of Financial Economics 49, 307-343.
8. Barsky, R.B. and J.B. De Long (1993) Why does the stock market fluctuate? Quarterly Journal of Economics 107, 291-311.
9. Bohl, M.T. and P.L. Siklos (2004) The present value model of U.S. stock prices redux: a new testing strategy and some evidence. Quarterly Review of Economics and Finance 44, 208-223.
10. Branch, W.A. (2004) Theory of rationally heterogeneous expectations: evidence from survey data on inflation expectations. Economic Journal 114, 592-621.
11. Brock, W.A. and C.H. Hommes (1997) A Rational route to randomness. Econometrica 65, 1059-1160.
12. Brock, W.A. and C.H. Hommes (1998) Heterogenous beliefs and routes to chaos in a simple asset pricing model. Journal of Economic Dynamics and Control 22, 1235-1274.
13. Campbell, J.Y. and R.J. Shiller (1988) The dividend-price ratio and expectations of future dividends and discount factors. Review of Financial Studies 1, 195-227.
14. Campbell, J.Y. and T. Vuolteenaho (2004) Inflation illusion and stock prices. American Economic Review, Papers and Proceedings 94, 19-23.
15. Carroll, C. (2003) Macroeconomic expectations of households and professional forecasters. Quarterly Journal of Economics 118, 269-298.
16. Cecchetti, S.G., P.-S. Lam, and N.C. Mark (2000) Asset pricing with distorted beliefs: are equity returns too good to be true? American Economic Review 90, 787-805.
17. Chan, L.K.C., J. Karceski, and J. Lakonishok (2003) The level and persistence of growth rates. Journal of Finance 58, 643-684.
18. Chow, G.C. (1989) Rational versus adaptive expectations in present value models. Review of Economics and Statistics 71, 385-393.
19. Coakley, J. and A. Fuertes (2004) Continuation and Reversal in U.S. Valuation Ratios. Working Paper, University of Essex.
20. Cochrane, J.H. (2001) Asset Pricing. Princeton: Princeton University Press.
21. David, P. (1985) Clio and the economics of QWERTY. American Economic Review, Papers and Proceedings 75, 332-337.
22. De Bondt, W.F.M. (1993) Betting on trends: intuitive forecasts of financial risk and return. International Journal of Forecasting 9, 355-371.
23. Delong, J.B., A. Shleifer, L.H. Summers, and R.J. Waldmann (1990) Noise trader risk in financial markets. Journal of Political Economy 98, 703-738.
24. Easterwood, J.C. and S.R. Nutt (1999) Inefficiency in analysts' earnings forecasts: systematic misreaction or systematic optimism? Journal of Finance 54, 1777-1797.
25. Evans, G.W. and S. Honkapohja (2001) Learning and expectations in economics. Princeton: Princeton University Press.
26. Fama, E.F. and K.R. French (1988) Dividend yields and expected stock returns. Journal of Financial Economics 25, 23-49.
27. Froot, K. and M. Obstfeld (1991) Intrinsic bubbles: the case of stock prices. American Economic Review 81, 1189-1214.
28. Gaunersdorfer, A. (2000) Endogenous fluctuations in a simple asset pricing model with heterogenous agents. Journal of Economic Dynamics and Control 24, 799-831.
29. Greenspan, A. (1999) The Federal Reserve's semiannual report on monetary policy. Testimony before the Committee on Banking and Financial Services, U.S. House of Representatives, July 22, 1999.
30. Gu, Z. and J.S. Wu (2003) Earnings skewness and analyst forecast bias. Journal of Accounting and Economics 35, 5-29.
31. Hansen, L.P., T.J. Sargent, and T.D. Tallarini (1999) Robust permanent income and pricing. Review of Economic Studies 66, 873-907.
32. Hommes, C.H. (2001) Financial markets as complex adaptive evolutionary systems. Quantitative Finance 1, 149-167.
33. Hommes, C.H., J. Sonnemans, J. Tuinstra, and H. van de Velden (2005) Coordination of expectations in asset pricing experiments. Review of Financial Studies 18, 955-980.
34. Hong, H. and J.C. Stein (2003) Simple forecasts and paradigm shifts. National Bureau of Economic Research, Working Paper 10013.
35. Kahneman, D. and A. Tversky (1974) Judgement under uncertainty: Heuristics and biases. Science 185, 1124-1131.
36. Keynes, J.M. (1936) The General Theory of Employment, Interest, and Money. New York: Harcourt-Brace.
37. Kirman, A. (1991) Epidemics of opinion and speculative bubbles in financial markets. In M. Taylor (ed.), Money and Financial Markets. London: Macmillan, 354-368.
38. Kocherlakota, N.R. (1990) On the discount factor in growth economies. Journal of Monetary Economics 25, 43-47.
39. Kurz, M. and M. Motolese (2001) Endogenous uncertainty and market volatility. Economic Theory 16, 497-544.
40. Lansing, K.J. (2004) Inflation-induced valuation errors in the stock market. FRBSF Economic Letter 2004-30 (October 29).
41. LeBaron, B, W.B. Arthur, and R. Palmer (1999) Time series properties of an artificial stock market. Journal of Economic Dynamics and Control 23, 1467-1516.
42. Lefévre, E. (1923) Reminiscences of a Stock Operator. New York: John Wiley (originally published by G.H. Doran).
43. Lei, V., C.N. Noussair, and C.R. Plott (2001) Nonspeculative bubbles in experimental asset markets: lack of common knowledge of rationality vs. actual irrationality. Econometrica 69, 831-859.
44. LeRoy, S.F. (2004) Rational exuberance. Journal of Economic Literature 152, 783-804.
45. LeRoy, S.F. and R.D. Porter (1981) The present-value relation: tests based on implied variance bounds. Econometrica 49, 555-577.
46. Lucas, R.E. (1978) Asset prices in an exchange economy. Econometrica 46, 1429-1445.
47. Mankiw, N.G., R. Reis, and J. Wolfers (2004) Disagreement about inflation expectations. In M. Gertler and K. Rogoff (eds.), NBER Macroeconomics Annual 2003. Cambridge, Mass. MIT Press, 209-248.
48. Mehra, R. and E. Prescott (1985) The equity premium: a puzzle. Journal of Monetary Economics 14, 145-161.
49. Modigliani, F. and R.A. Cohn (1979) Inflation, rational valuation and the market. Financial Analysts Journal 35, 24-44.
50. Nerlove, M. (1983) Expectations, plans, and realizations in theory and practice. Econometrica 51, 1251-1279.
51. Otrok, C., B. Ravikumar, and C.H. Whiteman (2002) Habit formation: a resolution of the equity premium puzzle? Journal of Monetary Economics 49, 1261-1288.
52. Polkovnichenko, V. (2004) Limited stock market participation and the equity premium. Finance Research Letters 1, 24-34.
53. Ritter, J.R. and R.S. Warr (2002) The decline in inflation and the bull market of 1982-1999. Journal of Financial and Quantitative Analysis 37, 29-61.
54. Roberts, J. (1997) Is inflation sticky? Journal of Monetary Economics 39, 173-196.
55. Schwert, G.W. (1989) Why does stock market volatility change over time? Journal of Finance 44, 1115-1153.
56. Shiller, R.J. (1981) Do stock prices move too much to be justified by subsequent changes in dividends? American Economic Review 71, 421-436.
57. Shiller, R.J. (1990) Market volatility and investor behavior. American Economic Review, Papers and Proceedings 80(2), 58-62.
58. Shiller, R.J. (2000) Irrational Exuberance. Princeton: Princeton University Press.
59. Shiller, R.J. (2003) From efficient markets theory to behavioral finance. Journal of Economic Perspectives 17 (Winter), 83-104.
60. Smith, V.L., G.L. Suchanek, and A.W. Williams (1988) Bubbles, crashes, and endogenous expectations in experimental spot asset markets. Econometrica 56, 1119-1151.
61. Sögner, L. and H. Mitlöhner (2002) Consistent expectations equilibria and learning in a stock market. Journal of Economic Dynamics and Control 24, 799-831.
62. Vissing-Jorgensen, A. (2004) Perspectives on behavioral finance: does "irrationality" disappear with wealth? Evidence from expectations and actions. In M. Gertler and K. Rogoff (eds.), NBER Macroeconomics Annual 2003. Cambridge, Mass. MIT Press, 139-194.