Belief dispersion in the stock market
Journal
Journal of Finance
Subject
Finance
Publishing details
Authors / Editors
Atmaz A;Basak S
Biographies
Publication Year
2018
Abstract
We develop a dynamic model of belief dispersion with a continuum of investors differing in beliefs. The model is tractable and qualitatively matches many of the empirical regularities in a stock price, its mean return, volatility, and trading volume.We find that the stock price is convex in cash-flow news and increases in belief dispersion, while its mean return decreases when the view on the stock is optimistic, and vice versa when pessimistic. Moreover, belief dispersion leads to a higher stock volatility and trading volume. We demonstrate that otherwise identical two-investor heterogeneous-beliefs economies do not necessarily generate our main results.
Keywords
Asset pricing; Belief dispersion; Heterogeneous beliefs; Stock price; Mean return; Volatility; Trading volume, Bayesian learning.
Available on ECCH
No
