Extraneous risk, heterogeneous beliefs and the equity premium with jump-diffusion uncertainty

摘要

We think stock price is decided not only by fundamental uncertainty but also by market nonfundamental (extraneous) uncertainty. Extraneous risk arises from agents heterogeneous beliefs about extraneous uncertainty. We provide a dynamic equilibrium model in the continuous-time pure-exchange economy where extraneous uncertainty is modeled by Poisson processes. We find that the stock's market volatility is correlated with the dispersion of disagreement about extraneous jump risk and expected returns can also be explaned by heterogeneous beliefs about extraneous jump risk too.