Endogenous random asset prices in overlapping generations economies

This paper derives a general explicit sequential asset price process for an economy with overlapping generations of consumers. They maximize expected utility with respect to subjective transition probabilities given by Markov kernels. The prc,cess is determined primarily by the interaction of exogen ous random dividends and the characteristics of consumers, given by arbitra ry preferences and expectations, yielding an explicit random dynamical syst em with expectations feedback. The paper studies asset prices and equity pr emia for a parametrized class of examples with CARA utilities and exponenti al distributions. It provides a complete analysis of the role of risk avers ion and of subjective as well as rational beliefs.