Empirical Rationality in the Stock Market

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Empirical Rationality in the Stock Market

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dc.contributor.author Raahauge, Peter en_US
dc.date.accessioned 2009-02-04T10:26:12Z
dc.date.available 2009-02-04T10:26:12Z
dc.date.issued 2003-10-14T00:00:00Z en_US
dc.identifier.uri http://hdl.handle.net/10398/7139
dc.description.abstract Rational expectations models make stringent assumptions on the agent's knowledge about the true model. This paper introduces a model in which the rational agent realizes that using a given model involves approximation errors, and adjusts behavior accordingly. If the researcher accounts for this empirical rationality on part of the agent, the resulting empirical model assigns likelihood to the data actually observed, unlike in the unmodified rational expectations case. A Lucas (1978)-type asset pricing model which incorporates empirical rationality is constructed and estimated using U.S. stock data. The equilibrium asset pricing function is seriously affected by the existence of approximation errors and the descriptive properties and normative implications of the model are significantly improved. This suggests that investors do not | and should not | ignore approximation errors. Keywords: Approximation errors, model uncertainty, estimation of structural models, rational expectations, asset pricing. en_US
dc.format.extent 32 s. en_US
dc.language eng en_US
dc.relation.ispartofseries CAF Working Paper;2003-141 en_US
dc.subject.other aktiemarkeder en_US
dc.subject.other asset pricing en_US
dc.subject.other rational expectations en_US
dc.title Empirical Rationality in the Stock Market en_US
dc.type wp en_US
dc.accessionstatus modt03okt14 inrumo en_US
dc.contributor.corporation Copenhagen Business School. CBS en_US
dc.contributor.department Institut for Finansiering en_US
dc.contributor.departmentshort FI en_US
dc.contributor.departmentuk Department of Finance en_US
dc.contributor.departmentukshort FI
dc.idnumber x656102461 en_US
dc.publisher.city København en_US
dc.publisher.year 2003 en_US


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