Investor sentiment, heterogeneous agents and asset pricing model
The North American Journal of Economics and Finance, 2017, vol. 42, issue C, 504-512
This paper presents a sentiment asset pricing model with heterogeneous agents. In the model, the sentiment equilibrium prices have a number proportion-weighted average structure among heterogeneous investors, and idiosyncratic sentiments can have a significant impact on the equilibrium price at the aggregate level because the demand function is nonlinear in the sentiment. Moreover, we also find that even if the individual sentiment affects the demand in a linear way, the sentiment may still has a significant effect on the equilibrium price in the aggregate due to the fluctuation of the number distribution of investors. The model could offer a partial explanation to the financial anomaly of overreaction.
Keywords: Heterogeneous sentiments; Asset pricing; Aggregation; Overreaction (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:42:y:2017:i:c:p:504-512
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