IFin Seminar, Pascal Maenhout, INSEAD - "Robustness and Dynamic Sentiment"

Institute of Finance

Data: 27/05/2021 / 12:25 - 13:25

Speaker: Pascal Maenhout, INSEAD

Title:      “Robustness and Dynamic Sentiment"

Date:      May 27, 2021

Time:      12:25 - 13:25

Room:     virtual

Lugano Campus 

 

Abstract:

Errors in survey expectations display waves of pessimism and optimism and significant sluggishness. This paper develops a novel theoretical framework of time-varying beliefs capturing these empirical facts. In our model, the dynamic beliefs arise endogenously due to agents’ attitude toward alternative models. Decision-maker’s distorted beliefs generate countercyclical risk aversion, procyclical portfolio weights, countercyclical equilibrium asset returns, and excess volatility. A calibrated version of our model is shown to match salient features in equity markets.