Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Institute for Financial Research SIFR Research Report Series, Institute for Financial Research

No 19:
Is There Evidence of Pessimism and Doubt in Subjective Distributions? A Comment on Abel

Paolo Giordani () and Paul Söderlind ()

Abstract: Abel (2002) shows that pessimism and doubt in the subjective distribution of the growth rate of consumption reduce the riskfree rate puzzle and the equity premium puzzle. We quantify the amount of pessimism and doubt in survey data on US consumption and income. Individual forecasters are in fact pessimistic, but show marked overconfidence rather than doubt. Whether this implies that overconfidence should be built into Abel's model depends on how the empirically heterogeneous subjective distributions are mapped into the distribution of a fictitious representative agent. We work out the form of this mapping in an Arrow-Debreu economy and show that the equity premium increases with the dispersion of beliefs. We then estimate this aggregate distribution and find little evidence of either overconfidence or doubt.

Keywords: Equity premium; Riskfree rate; Aggregation of beliefs; Survey of Professional Forecasters; Livingston Survey; (follow links to similar papers)

JEL-Codes: C42; E44; G12; (follow links to similar papers)

20 pages, August 15, 2003

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

sifr-wp19.pdf    PDF-file
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Anki Helmer ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:sifrwp:0019 This page was generated on 2014-12-14 19:26:49