Resource title

How do investors' expectations drive asset prices?

Resource image

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Resource description

Asset price processes are completely described by information processes and investors´ preferences. In this paper we derive the relationship between the process of investors´ expectations of the terminal stock price and asset prices in a general continous time pricing kernel framework. To derive the asset price process we make use of the modern technique of forward-backward stochastic differential equations. With this approach it is possible to show the driving factors for stochastic volatility of asset prices and to give theoretical arguments for empirically well documented facts. We show that stylized facts that look at first hand like financial market anomalies may be explained by an information process with stochastic volatility.

Resource author

Erik Lüders, Bernhard Peisl

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/24435

Resource license

Adapt according to the presented license agreement and reference the original author.