NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Peter Hansen

MIT Sloan School of Management
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Cambridge, MA 02142

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Institutional Affiliation: Massachusetts Institute of Technology

NBER Working Papers and Publications

May 2020Robust Identification of Investor Beliefs
with Xiaohong Chen, Lars P. Hansen: w27257
This paper develops a new method informed by data and models to recover information about investor beliefs. Our approach uses information embedded in forward-looking asset prices in conjunction with asset pricing models. We step back from presuming rational expectations and entertain potential belief distortions bounded by a statistical measure of discrepancy. Additionally, our method allows for the direct use of sparse survey evidence to make these bounds more informative. Within our framework, market-implied beliefs may differ from those implied by rational expectations due to behavioral/psychological biases of investors, ambiguity aversion, or omitted permanent components to valuation. Formally, we represent evidence about investor beliefs using a novel nonlinear expectation function de...
 
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