Abel (2002) proposes a resolution of the riskfree rate and the equity premium puzzles by considering pessimism and doubt. Pessimism is characterized by subjective probabilistic beliefs about consumption growth rates that are stochastically dominated by the objective distribution. The subjective...

Abel (2002) proposes a resolution of the riskfree rate and the equity premium puzzles by considering pessimism and doubt. Pessimism is characterized by subjective probabilistic beliefs about consumption growth rates that are stochastically dominated by the objective distribution. The subjective...

For games with expected utility maximizing players whose strategy sets are finite, Pearce (1984) shows that a strategy is strictly dominated by some mixed strategy, if and only if, this strategy is not a best response to some belief about opponents' strategy choice. This note generalizes...

For games with expected utility maximizing players whose strategy sets are finite, Pearce (1984) shows that a strategy is strictly dominated by some mixed strategy, if and only if, this strategy is not a best response to some belief about opponents' strategy choice. This note generalizes...

This note extends the existing literature on speculative bubbles by allowing for arbitrary trading sequences. As our main result we prove that bubbles may exist in a myopic rational expectations equilibrium (Radner 1979) if and only if every agent expects infinitely many trading opportunities to...

This paper discusses pitfalls in the application of the rolling trace test. This procedure is based on the iterative calculation of Johansen's (1988) trace test for the rank of a cointegration system in windows of equal length that roll over the sample. Pitfalls lie in the selection of the...

Structural breaks in relationships between macroeconomic and financial time series are likely a result of financial crises or local reforms. If such structural breaks exist, cointegration tests have to take them into account. Arai and Kurozumi (2007), Carrion-i-Silvestre and Sanso (2006) and...