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Equilibrium pricing and portfolio composition in the presence of uncertain parameters

Journal of Financial Economics 1988 22(2), 279-303
We analyze the effect of parameter uncertainty on equilibrium asset prices. For the symmetric case, when the amount of estimation risk is the same for all securities, the existing literature argues that parameter uncertainty is largely irrelevant for equilibrium. Our results differ. We find that symmetric estimation risk affects equilibrium values of relative asset prices, expected returns, market weights, and betas.