Model Uncertainty, Limited Market Participation, and Asset Prices
We demonstrate that limited participation can arise endogenously in the presence of model uncertainty and heterogeneous uncertainty-averse investors. When uncertainty dispersion among investors is small, full participation prevails in equilibrium. Equity premium is related to the average uncertainty...
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| Veröffentlicht in: | The Review of financial studies 2005-01, Vol.18 (4), p.1219-1251 |
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| container_title | The Review of financial studies |
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| creator | Cao, H. Henry Wang, Tan Zhang, Harold H. |
| description | We demonstrate that limited participation can arise endogenously in the presence of model uncertainty and heterogeneous uncertainty-averse investors. When uncertainty dispersion among investors is small, full participation prevails in equilibrium. Equity premium is related to the average uncertainty among investors and a conglomerate trades at a price equal to the sum of its single-segment components. When uncertainty dispersion is large, investors with high uncertainty choose not to participate in the stock market, resulting in limited market participation. When limited participation occurs, participation rate and equity premium can decrease in uncertainty dispersion and a conglomerate trades at a discount. |
| doi_str_mv | 10.1093/rfs/hhi034 |
| format | Article |
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When limited participation occurs, participation rate and equity premium can decrease in uncertainty dispersion and a conglomerate trades at a discount.</description><identifier>ISSN: 0893-9454</identifier><identifier>EISSN: 1465-7368</identifier><identifier>DOI: 10.1093/rfs/hhi034</identifier><language>eng</language><publisher>Oxford: Oxford University Press</publisher><subject>Assets ; Behavioral decision theory ; Conglomerates ; Discounts ; Economic models ; Economic uncertainty ; Equilibrium ; Equity ; Expected utility ; Finance ; Financial portfolios ; Households ; Investment advisors ; Investment policy ; Investments ; Investors ; Market ; Market equilibrium ; Participation ; Prices ; Probability distribution ; Regression analysis ; Return on investment ; Risk premiums ; Securities markets ; Stock exchanges ; Stock markets ; Stock prices ; Stock shares ; Studies ; Uncertainty</subject><ispartof>The Review of financial studies, 2005-01, Vol.18 (4), p.1219-1251</ispartof><rights>Copyright 2005 The Society for Financial Studies</rights><rights>Copyright Oxford University Press(England) Winter 2005</rights><lds50>peer_reviewed</lds50><woscitedreferencessubscribed>false</woscitedreferencessubscribed><citedby>FETCH-LOGICAL-c469t-185136f4cb9a11471bb7ff98d5f8cb5dbb6e265ecf21bb3d85b945fae06e894a3</citedby><cites>FETCH-LOGICAL-c469t-185136f4cb9a11471bb7ff98d5f8cb5dbb6e265ecf21bb3d85b945fae06e894a3</cites></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><linktopdf>$$Uhttps://www.jstor.org/stable/pdf/3598020$$EPDF$$P50$$Gjstor$$H</linktopdf><linktohtml>$$Uhttps://www.jstor.org/stable/3598020$$EHTML$$P50$$Gjstor$$H</linktohtml><link.rule.ids>314,776,780,799,27901,27902,57992,58225</link.rule.ids></links><search><creatorcontrib>Cao, H. 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When limited participation occurs, participation rate and equity premium can decrease in uncertainty dispersion and a conglomerate trades at a discount.</description><subject>Assets</subject><subject>Behavioral decision theory</subject><subject>Conglomerates</subject><subject>Discounts</subject><subject>Economic models</subject><subject>Economic uncertainty</subject><subject>Equilibrium</subject><subject>Equity</subject><subject>Expected utility</subject><subject>Finance</subject><subject>Financial portfolios</subject><subject>Households</subject><subject>Investment advisors</subject><subject>Investment policy</subject><subject>Investments</subject><subject>Investors</subject><subject>Market</subject><subject>Market equilibrium</subject><subject>Participation</subject><subject>Prices</subject><subject>Probability distribution</subject><subject>Regression analysis</subject><subject>Return on investment</subject><subject>Risk premiums</subject><subject>Securities markets</subject><subject>Stock exchanges</subject><subject>Stock markets</subject><subject>Stock prices</subject><subject>Stock shares</subject><subject>Studies</subject><subject>Uncertainty</subject><issn>0893-9454</issn><issn>1465-7368</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2005</creationdate><recordtype>article</recordtype><recordid>eNqFkL9PAyEYhonRxFpdnB0uDg6mZ-GAA8am8VfSRgc7E46DlHo9KtCh_700ZxxcnL7hffLmex8ArhF8QFDgabBxul47iMkJGCFS05Lhmp-CEeQCl4JQcg4uYtxACBEmcARmS9-arlj12oSkXJ8Ok2Lhti6Ztliq8GlS8a5CctrtVHK-nxSqb4tZjMcgOG3iJTizqovm6ueOwerp8WP-Ui7enl_ns0WpSS1SiThFuLZEN0IhRBhqGmat4C21XDe0bZraVDU12lY5wi2nTX7XKgNrwwVReAzuht5d8F97E5PcuqhN16ne-H2UmLHcWvF_QcTydEJoBm__gBu_D30eISsMs0MhWIbuB0gHH2MwVu6C26pwkAjKo3OZncvBeYZvBngTkw-_JKaCwwrib1R8fgw</recordid><startdate>20050101</startdate><enddate>20050101</enddate><creator>Cao, H. 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| ispartof | The Review of financial studies, 2005-01, Vol.18 (4), p.1219-1251 |
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| source | Jstor Complete Legacy; Oxford University Press Journals All Titles (1996-Current); Business Source Complete |
| subjects | Assets Behavioral decision theory Conglomerates Discounts Economic models Economic uncertainty Equilibrium Equity Expected utility Finance Financial portfolios Households Investment advisors Investment policy Investments Investors Market Market equilibrium Participation Prices Probability distribution Regression analysis Return on investment Risk premiums Securities markets Stock exchanges Stock markets Stock prices Stock shares Studies Uncertainty |
| title | Model Uncertainty, Limited Market Participation, and Asset Prices |
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