Belief dispersion in the stock market

Basak, S and Atmaz, A (2017) Belief dispersion in the stock market. The Journal of Finance. ISSN 0022-1082 (Submitted)

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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.

Item Type: Article
Subjects: S > Securities
P > Price theory
Subject Areas: Finance
Date Deposited: 01 Sep 2017 09:53
Last Modified: 01 Sep 2017 13:23
URI: http://lbsresearch.london.edu/id/eprint/857

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