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Asset Pricing in a Production Economy with Incomplete Information
Author(s) -
DETEMPLE JÉRÔME B.
Publication year - 1986
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1986.tb05043.x
Subject(s) - unobservable , reinterpretation , complete information , production (economics) , economics , state (computer science) , econometrics , asset (computer security) , capital asset pricing model , state variable , mathematical economics , financial economics , microeconomics , computer science , physics , computer security , algorithm , acoustics , thermodynamics
This paper analyzes an economy in which investors operate under partial information about technology‐relevant state variables. It is shown that for Gaussian information structures under incomplete observations, the consumer's problem can be transformed into an equivalent program with a completely observed state: the conditional expectation of the underlying unobservable state variables. A consequence of this transformation is that classic results in finance remain valid under an appropriate reinterpretation of the state variables.