Beauty Contests and Iterated Expectations in Asset Markets

Allen, Franklin; Morris, Stephen; Hyun Song Shin
September 2006
Review of Financial Studies;Fall2006, Vol. 19 Issue 3, p719
Academic Journal
In a financial market where traders are risk averse and short lived and prices are noisy, asset prices today depend on the average expectation today of tomorrow's price. Thus (iterating this relationship) the date 1 price equals the date 1 average expectation of the date 2 average expectation of the date 3 price. This will not, in general, equal the date 1 average expectation of the date 3 price. We show how this failure of the law of iterated expectations for average belief can help understand the role of higher-order beliefs in a fully rational asset pricing model.


Related Articles

  • Crammin' for Life's Lessons. Miller, Mike // Credit Union Magazine;Apr2004, Vol. 70 Issue 4, p28 

    Discusses the role of financial service providers in helping college students manage personal finance. Basic affordable services for college students; Advantage of savings and checking accounts over preapproved credit card for students; Average cost of basic services affordable to students.

  • Going beyond PMJDY to achieve financial inclusion in India. Ravi, Shamika // FICCI's Financial Foresights;2015/2016 Q1, Vol. 6 Issue 1, p20 

    The article discusses India's focus on expanding the portfolio of financial instruments to all households in India with the launch of the Pradhan Jan Mantri Dhan Yojana (PJMDY). Topic discussed include several financial services in the portfolio of financial inclusion strategies to account for...

  • Life-Cycle Investing Is Rolling Our Way. Hogan, Paula H. // Journal of Financial Planning;May2007, Vol. 20 Issue 5, p46 

    • Drawing on 1950s models, the financial planning community uses mainly precautionary savings and diversification strategies to manage personal wealth. But financial economists and many others in the financial services industry have moved on to a new paradigm known as life-cycle investing....

  • Ring around and save a fortune. Keenan, Ted // Finance Week;01/26/2001, p60 

    Discusses savings that could be obtained by South Africans from examining the cost of financial services they receive. Comparison of interest rates for mortgage loans; Reduction of the cost of life assurance; Use of short-term insurance; Evaluation of asset financing; Discrepancies between the...

  • Estate Tax Repeal: Why Worry? Wolff, Thomas John // Advisor Today;Oct2000, Vol. 95 Issue 10, p142 

    Comments on the financial services business in the United States. Opinion on the proposed phase out of the federal estate tax; Advice on saving personal incomes.

  • Money Matters. Nartker, Lisa Christy // Business People;May2014 Supplement Business Woman of North East Indiana, p46 

    The article offers guidelines for women on the selection of financial advisors. The tasks and responsibilities of a good financial advisor are outlined which include listening to the client, understanding the unique circumstances of clients and offering a variety of financial solutions. The 2011...

  • Martin Werth: Budget is shot in the arm for protection. Werth, Martin // Money Marketing (Online Edition);4/15/2014, p10 

    The article presents the author's views on long-term saving and budget in Great Britain. According to the author, the way by which consumers look at long-term financial planning will not be the same following, the budget. The author states that the Budget should encourage a beneficial view for...

  • Treasurers, College Savings Group to Discuss 529 Plans With SEC, MSRB. Hume, Lynn // Bond Buyer;6/29/2004, Vol. 348 Issue 31915, p5 

    Reports on the deliberations on the tax-advantaged college savings plans that states have set up under section 529 of the U.S. Internal Revenue Code. Scrutiny of the legislature on the adequacy of the fees, disclosures and sales practices associated with college savings plans; Appeal for the...

  • A CONSUMER'S VIEW. Bourke, Lorna // Money Marketing;8/12/2004, p22 

    Presents views on the restoration of confidence in long-term savings for consumer groups in Great Britain. Significance of restoring confidence in savings in the financial services industry; Description of a trail commission; Importance of fee charging to independent financial advisers.


Read the Article


Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics