Heterogeneous beliefs with information processing constraints and asset pricing in presence of non-tradable goods

Hailong Wang and Duni Hu

The North American Journal of Economics and Finance, 2025, vol. 80, issue C

Abstract: This paper proposes an international financial model with two investors to explore the influences of heterogeneous beliefs and capacity constraints on asset prices. The capacity constraints not only impose influences on the investors’ posterior means and variances, but also generate persistent disagreements. We present that even though the non-tradable goods are only domestically consumed, the investors can partially mitigate their non-tradable goods consumption risks by adjusting tradable goods consumptions. We also show that introducing the non-tradable goods leads the investors’ optimal portfolio choices to depend on hedging demands motivated by uncertainties of the stocks with claims to the non-tradable goods. The previous mechanism of the non-tradable goods plays an important role in determining the effects of heterogeneous beliefs on asset pricing moments.

Keywords: Heterogenous beliefs; Capacity constraints; Asset pricing; Risk premium; Portfolio choice (search for similar items in EconPapers)
JEL-codes: D51 D53 D91 G11 G12 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:80:y:2025:i:c:s1062940825001603

DOI: 10.1016/j.najef.2025.102520

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