Sentiment asset pricing model with consumption |
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Institution: | 1. Real Estate and Planning, University of Reading, Whiteknights, Reading RG6 6UD, United Kingdom;2. The Bartlett School of Construction and Project Management, University College London, United Kingdom;1. Output and Demand Division, European Central Bank, Frankfurt am Main, Germany;2. Macroeconomic Statistics Division, European Central Bank, Frankfurt am Main, Germany |
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Abstract: | We present an asset pricing model by incorporating investor sentiment. The sentiment equilibrium price could be decomposed to the rational term and the sentiment term, and the investor sentiment has a systematic and significant impact on the risky asset price. In the model, the sentiment term has a wealth-weighted average structure and the investor's wealth proportion could amplify the sentiment shock on the asset price. The model could offer a partial explanation of some financial anomalies in the stock market: the phenomenon of savings transfer to the stock market, pricing bubble and high volatility. |
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