Asset pricing with endogenous aspirations

Fabio Antonelli, Emilio Barucci and Maria Elvira Mancino

Decisions in Economics and Finance, 2001, vol. 24, issue 1, 39 pages

Abstract: We develop the classical asset pricing analysis assuming that the representative agent is characterized by endogenous aspirations. The agent's aspirations at time t are given by a linear combination of the standard of living (habit) at time t (the “forward” part) and of the conditional expectation at t of the habit at the end of the agent's life (the “backward” part). With this process we capture the fact that the agent's preferences are affected by what he plans to do in the future. Under certain conditions, the risk premium turns out to be higher than that obtained with an additive expected utility when both the forward and the backward parts affect the utility negatively. Copyright Springer-Verlag Italia 2001

Keywords: Mathematics Subject Classification (2000): 60H; 90A10; Journal of Economic Literature Classification: C61; D11; D81; G12 (search for similar items in EconPapers)
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:spr:decfin:v:24:y:2001:i:1:p:21-39

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DOI: 10.1007/s102030170007

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