Lock-in of Extrapolative Expectations in an Asset Pricing Model ∗

@inproceedings{Lansing2005LockinOE,
  title={Lock-in of Extrapolative Expectations in an Asset Pricing Model ∗},
  author={Kevin J. Lansing},
  year={2005}
}
  • Kevin J. Lansing
  • Published 2005
This paper examines an agent’s choice of forecast method within a standard asset pricing model. To make a conditional forecast, a representative agent may choose one of the following: (1) a rational (or fundamentals-based) forecast that employs knowledge of the stochastic process governing dividends, (2) a constant forecast based on a simple long-run average of the forecast variable, or (3) a time-varying forecast that extrapolates from the last observation of the forecast variable. I show that… CONTINUE READING

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