Lam, Pok-sang; Cecchetti, Stephen G.; Mark, Nelson C. - In: American Economic Review 90 (2000) 4, pp. 787-805
We study a Lucas asset-pricing model that is standard in all respects, except that the representative agent's subjective beliefs about endowment growth are distorted. Using constant relative risk-aversion (CRRA) utility, with a CRRA coefficient below 10; fluctuating beliefs that exhibit, on...