Footnote:
In: Management Science
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments July 24, 2017 erstellt
Description:
We study an economy with incomplete information in which two agents are uncertain and disagree about the length of business cycles. That is, the agents do not question whether the economy is growing or not, but instead continuously estimate how long economic cycles will last — i.e., they learn about the persistence of fundamentals. Learning about persistence generates high and persistent stock return volatility mostly during recessions, but also (to a smaller extent) during economic booms. Disagreement among agents fluctuates and earns a risk premium. A clear risk-return tradeoff appears only when conditioning on the sign and magnitude of disagreement. We confirm these predictions empirically