2017 IMS-FIPS Workshop

July 27-28, 2017, UNIVERSITY OF MARYLAND, BALTIMORE COUNTY
This is the 7th Special INTEREST WORKSHOP, CO-SPONSORED BY THE INSTITUTE OF MATHEMATICAL STATISTICS, FOCUSED ON THE APPLICATIONS OF PROBABILITY AND STATISTICS IN THE FIELDS OF FINANCE AND INSURANCE

Participant Information

Maxim Bichuch from Johns Hopkins University.

Paper: The Learning Premium

We find equilibrium stock prices and interest rates in a representative-agent model with uncertain dividends’ growth, gradually revealed by dividends themselves, where asset prices are rational - reflect current information and anticipate the impact of future knowledge on future prices. In addition to the usual premium for risk, stock returns include a learning premium, which reflects the expected change in prices from new information. In the long run, the learning premium vanishes, as prices and interest rates converge to their counterparts in the standard setting with known growth. The model explains the increase in price-dividend ratios of the past century if both relative risk aversion and elasticity of intertemporal substitution are above one. This is a joint work with Paolo Guasoni.