Properties of Subjective Beliefs Estimators

27 Pages Posted: 17 Mar 2021

See all articles by Anisha Ghosh

Anisha Ghosh

McGill University

Taisuke Otsu

London School of Economics & Political Science (LSE) - Department of Economics

Guillaume Roussellet

McGill University - Desautels Faculty of Management

Date Written: February 12, 2021

Abstract

Information-theoretic methods have recently been proposed for the simultaneous recovery of investors’ beliefs about future macroeconomic and financial outcomes and their risk preferences from observed asset prices. These methods estimate beliefs and preferences to minimize the statistical discrepancy between the recovered beliefs and the true data generating process (DGP), subject to asset pricing Euler equation constraints. This paper develops the asymptotic properties of these subjective beliefs estimators. We compare empirically the beliefs recovered with alternative estimators in this class, that differ on the basis of the statistical divergence functions used to characterize the discrepancy between the beliefs and the DGP.

Keywords: Rational Expectations, Behavioral Biases, Pricing Kernel, Conditioning Set, Relative Entropy Minimization

JEL Classification: C51, E3, E70, G12, G14, G40

Suggested Citation

Ghosh, Anisha and Otsu, Taisuke and Roussellet, Guillaume, Properties of Subjective Beliefs Estimators (February 12, 2021). Available at SSRN: https://ssrn.com/abstract=3784757 or http://dx.doi.org/10.2139/ssrn.3784757

Anisha Ghosh (Contact Author)

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

Taisuke Otsu

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Guillaume Roussellet

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

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