Uncertainty and sentiments in asset prices

Michele Berardi

Journal of Economic Behavior & Organization, 2022, vol. 202, issue C, 498-516

Abstract: In this paper, I propose a novel way to model sentiments in asset prices. Under this new representation, sentiments, or animal spirits, are sparked by exogenous shocks to beliefs, but feed on the uncertainty generated by imperfect information. Sentiments cause expectations to deviate from optimal, information-based estimates, with their magnitude depending on the amount of uncertainty: the higher the uncertainty, the larger the scope for psychological attitudes to affect expectations.

Keywords: Information; Uncertainty; Sentiments; Bayesian learning; Financial markets (search for similar items in EconPapers)
JEL-codes: D83 D84 G14 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Uncertainty and sentiments in asset prices (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:202:y:2022:i:c:p:498-516

DOI: 10.1016/j.jebo.2022.08.023

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