Self-Fulfilling Risk Panics: An Expected Utility Framework
Jess Benhabib (),
Xuewen Liu and
Pengfei Wang ()
No 28284, NBER Working Papers from National Bureau of Economic Research, Inc
Even if an asset has no fundamental uncertainty with a constant dividend process, a stochastic sentiment-driven equilibrium for the asset price exists besides the well-known fundamental equilibrium. Our paper constructs such sentiment-driven equilibria under general utility functions within an OLG structure. Our paper further shows that the existence of sentiment-driven equilibria is robust in a standard infinite-period model as long as the pricing kernel is affected by the asset price.
JEL-codes: E44 G01 G11 (search for similar items in EconPapers)
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