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I develop a stochastic growth model with production where there is a hidden state governing productivity growth regimes, and the hidden state evolves according to a Markov chain. Economic agents learn about the hidden state and display ambiguity aversion in the spirit of Klibanoff et al. (2005)....
Persistent link: https://www.econbiz.de/10009411461
We examine a production-based asset pricing model with an unobservable mean growth rate ollowing a two-state Markov chain and with an ambiguity averse representative agent. Our model requires a low coefficient of relative risk aversion to produce: (i) a high equity premium and volatile equity...
Persistent link: https://www.econbiz.de/10013066542
We introduce ambiguity about assets' value dynamics into a trade-off framework of capital structure to explain the empirically observed zero-leverage and underleverage puzzles. We utilize the decision framework of Chen and Epstein (2002) to characterize investors' ambiguity aversion. We show...
Persistent link: https://www.econbiz.de/10012825282