Department of Economics, University of California, Santa Barbara. CA 93106. I am indebted to N. Chen, G. Constantinides, J. Hirshleifer, and S. Ross for comments. This paper has benefited from exceptionally capable editing by M. Adler and refereeing by J.-P. Danthine and E. Losq. The usual disclaimer applies.
Expectations Models of Asset Prices: A Survey of Theory
Article first published online: 30 APR 2012
1982 The American Finance Association
The Journal of Finance
Volume 37, Issue 1, pages 185–217, March 1982
How to Cite
LEROY, S. F. (1982), Expectations Models of Asset Prices: A Survey of Theory. The Journal of Finance, 37: 185–217. doi: 10.1111/j.1540-6261.1982.tb01103.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
This paper identifies restrictions on preferences under which various classes of “expectations” theories of asset prices—i.e., uncertainty models of asset prices which coincide with the corresponding certainty theory except that expected future prices replace actual future prices—are valid. Major classes of expectations models surveyed are martingale models, the expectations hypothesis of the term structure of interest rates, and models of exhaustible resources and futures markets. In each case the required restriction is related to the assumption of risk-neutrality, but the precise nature of the required restriction is shown to differ significantly among the various classes of expectations theories.