TY  - JOUR
AU  - Cecchetti,Stephen G.
AU  - Lam,Pok-sang
AU  - Mark,Nelson C.
TI  - Asset Pricing with Distorted Beliefs: Are Equity Returns Too Good To Be True?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6354
PY  - 1998
Y2  - January 1998
UR  - http://www.nber.org/papers/w6354
L1  - http://www.nber.org/papers/w6354.pdf
N1  - Author contact info:
Stephen G. Cecchetti
Monetary and Economic Department
Bank for International Settlements
Centralbahnplatz 2
4002 Basel
SWITZERLAND
Tel: +41 61 280 8350
Fax: +41 61 280 9113
E-Mail: stephen.cecchetti@bis.org

Pok-Sang Lam
Department of Economics
Ohio State University
1945 North High Street
Columbus, OH   43210-1172
Tel: 614/292-6702

Nelson Mark
Department of Economics and Econometrics
University of Notre Dame
Notre Dame, IN  46556
Tel: 574/631-0518
Fax: 574/631-4783
E-Mail: nmark@nd.edu
AB  - We study a Lucas asset pricing model that is standard in all respects representative agent's subjective beliefs about endowment growth are distorted.  Using constant-relative-risk-aversion (CRRA) utility a CRRA coefficient below ten that exhibit, on average, excessive pessimism over expansions and excessive optimism over" contractions, our model is able to match the first and second moments of the equity premium and" risk-free rate, as well as the persistence and predictability of excess returns found in the data."
ER  -