Belief dispersion in the stock market

Basak, S and Atmaz, A (2018) Belief dispersion in the stock market. The Journal of Finance, 73 (3). pp. 1225-1279. ISSN 0022-1082

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.

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Item Type: Article
Subject Areas: Finance
Additional Information: This is the peer reviewed version of the following article: Atmaz, A, Basak, S (2018) Belief Dispersion in the Stock Market, Journal of Finance, which has been published in final form at https://doi.org/10.1111/jofi.12618. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving. © 2018 American Finance Association
Subjects: S > Securities
P > Price theory
Date Deposited: 01 Sep 2017 09:53
Last Modified: 20 Aug 2018 21:49
URI: http://lbsresearch.london.edu/id/eprint/857
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