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/lp/oxford-university-press/the-investor-recognition-hypothesis-in-a-dynamic-general-equilibrium-TBAh0CNcd0
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- Publisher
- Oxford University Press
- Copyright
- Copyright The Society for Financial Studies 2002
- ISSN
- 0893-9454
- eISSN
- 1465-7368
- DOI
- 10.1093/rfs/15.1.97
- Publisher site
- See Article on Publisher Site
Abstract
This article analyzes a dynamic general equilibrium under a generalization of Merton’s (1987) investor recognition hypothesis. A class of informationally constrained investors is assumed to implement only a particular trading strategy. The model implies that, all else being equal, a risk premium on a less visible stock need not be higher than that on a more visible stock with a lower volatility—contrary to results derived in a static mean-variance setting. A consumption-based capital asset pricing model (CAPM) augmented by the generalized investor recognition hypothesis emerges as a viable contender for explaining the cross-sectional variation in unconditional expected equity returns.
Journal
The Review of Financial Studies – Oxford University Press
Published: Jan 16, 2002