Events at CERGE-EI

Prof. Per Krusell

Institute for International Economic Studies, Stockholm University, Sweden

Authors:  Juan Carlos Hatchondo, Per Krusell, and Martin Schneider

Abstract: 

This paper considers an asset market where investors have private information not only about asset payoffs, but also about their own exposure to an aggregate risk factor. In equilibrium, rational investors disagree about asset payoffs: those with higher exposure to the risk factor are more optimistic about claims on the risk factor, which leads to less risk sharing than under symmetric information. Moreover, uncertainty about exposure amplifies the effect of aggregate exposure on asset prices, and can thereby help explain the excess volatility of prices and the predictability of excess returns.

Full Text: “Asset Trading and Valuation with Uncertain Exposure”