heterogeneous beliefs; relative wealth index; Sharpe ratio; state price densities
en
Abstract:
This work considers a continuous time pure exchange economy where the agents have heterogeneous beliefs about the aggregate dividend pro- cess and also care about relative wealth concerns. It is shown, analytically, that in the special case where the agents have logarithmic utility, the rel- ative wealth concerns do not in uence the equilibrium. Another special case is considered where the agents' risk aversion parameter is 2 and it is shown that the Sharpe ratios are time-dependent and the final wealth state dependent.
