Is the market price of risk infinite?

Timothy Cogley

    Research output: Contribution to journalArticlepeer-review

    Abstract

    In a Bayesian model, a rational-expectations Euler equation involves a learning wedge that disconnects the consumer's IMRS from the rational-expectations pricing kernel. The wedge is extremely volatile and explains the high volatility of the rational-expectations pricing kernel.

    Original languageEnglish (US)
    Pages (from-to)13-16
    Number of pages4
    JournalEconomics Letters
    Volume102
    Issue number1
    DOIs
    StatePublished - Jan 2009

    Keywords

    • Hansen-Jagannathan bound
    • Learning
    • Market price of risk
    • Wedges

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

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