Dynamic asset pricing model with heterogeneous sentiments

Chunpeng Yang and Rengui Zhang

Economic Modelling, 2013, vol. 33, issue C, 248-253

Abstract: The systematic and important role of investor sentiment has been supported by some recent empirical and theoretical literatures. In this paper, we present a dynamic asset pricing model with heterogeneous sentiments and we find that the equilibrium stock price is the wealth-share-weighted average of the stock prices that would prevail in an economy with one sentiment investor only. Moreover, heterogeneous sentiments induce fluctuations in the wealth distribution, which increases stock return volatility and induces mean reversion in stock returns. The model offers a partial explanation for the financial anomaly of mean reversion.

Keywords: Behavioral finance; Heterogeneous sentiments; Dynamic asset pricing model; Mean reversion (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:33:y:2013:i:c:p:248-253

DOI: 10.1016/j.econmod.2013.03.026

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