An Exploration of the Effects of Pessimism and Doubt on Asset Returns

  title={An Exploration of the Effects of Pessimism and Doubt on Asset Returns},
  author={Andrew B. Abel},
The subjective distribution of growth rates of aggregate consumption is characterized by pessimism if it is first-order stochastically dominated by the objective distribution. Uniform pessimism is a leftward translation of the objective distribution of the logarithm of the growth rate. The subjective distribution is characterized by doubt if it is mean-preserving spread of the objective distribution. Pessimism and doubt both reduce the riskfree rate and thus can help resolve the riskfree rate… CONTINUE READING

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