What is it about?
We provide a formal way to use the tools from statistics and optimization to show formally what can be learned from financial markets about market beliefs.
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Why is it important?
Researchers and policy makers often look to financial markets to gauge, at least informally, market sentiments. Our approach opens the door to applications using formal statistical methods potentially augmented with sparsely available survey evidence.
Perspectives
This article addresses a problem that I mentioned in my Nobel paper published in the Journal of Political Economy. But the article advances ideas in ways that I certainly did not anticipate. The article draws formally on methods from optimization, control theory, and statistics applied in ways that are far from ``off the shelf.'' I particularly like that fact that our article provides one way formally to think of economic decision makers as being thoughtful but not fully rational. It was my pleasure to work with two great co-authors, both of whom I have known for many years.
Lars Hansen
University of Chicago
Read the Original
This page is a summary of: Robust identification of investor beliefs, Proceedings of the National Academy of Sciences, December 2020, Proceedings of the National Academy of Sciences,
DOI: 10.1073/pnas.2019910117.
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