Belief Dispersion in the Stock Market

Adem Atmaz and Suleyman Basak

Journal of Finance, 2018, vol. 73, issue 3, 1225-1279

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 and 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 higher stock volatility and trading volume. We demonstrate that otherwise identical two‐investor heterogeneous‐beliefs economies do not necessarily generate our main results.

Date: 2018
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https://doi.org/10.1111/jofi.12618

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Working Paper: Belief Dispersion in the Stock Market (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:73:y:2018:i:3:p:1225-1279

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