The learning premium (Q2299391)

The authors developed a model for asset pricing. To identify the posterior distributions at each time, they observed that these distributions coincide with those arising from a Pólya urn scheme, and hence yield posteriors in the beta-binomial class. Then they find in closed form the stock price and its implied equilibrium rate when the representative investor has time-additive utility. In this case, they investigated the recursive preferences of \textit{L. G. Epstein} and \textit{S. E. Zin} [Econometrica 57, No. 4, 937--969 (1989; Zbl 0683.90012)]. The model is based on a Lucas's tree economy with one unit of a risky asset (see for example (see [\textit{R. E. Lucas jun.}, Econometrica 46, 1429--1445 (1978; Zbl 0398.90016)] or [\textit{I. Martin}, Econometrica 81, No. 1, 55--111 (2013; Zbl 1274.91202)]), which yields at time \(t\) a perishable dividend \(D_t\) that starts at \(D_0\) and follows a discrete-time process. The main result identifies the price-divide ratio and safe rate in equilibrium over time and is given in Theorem 4.1.