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.