ASSET PRICING WITH INCOMPLETE INFORMATION IN A DISCRETE-TIME PURE EXCHANGE ECONOMY Article

cited authors

  • BIDARKOTA, Prasad V; DUPOYET, Brice V

abstract

  • We study the consumption based asset pricing model in a discrete-time pure exchange setting with incomplete information. Incomplete information leads to a filtering problem which agents solve using the Kalman filter. We characterize the solution to the asset pricing problem in such a setting. Empirical estimation with US consumption data indicates strong statistical support for the incomplete information model versus the benchmark complete information model. We investigate the ability of the model to replicate some key stylized facts about US equity and risk-free returns.

publication date

  • June 1, 2011

keywords

  • E43
  • G12
  • G13
  • Kalman filter
  • asset pricing
  • equity returns
  • incomplete information
  • risk free returns

start page

  • 9

end page

  • 26

volume

  • III

issue

  • 1