Heterogeneous Beliefs and Tests of Present Value Models

Kenneth Kasa, Todd Walker and Charles H. Whiteman

The Review of Economic Studies, 2014, vol. 81, issue 3, 1137-1163

Abstract: This article develops a dynamic asset pricing model with persistent heterogeneous beliefs. The model features competitive traders who receive idiosyncratic signals about an underlying fundamentals process. We adapt Futia's (1981) frequency domain methods to derive conditions on the fundamentals that guarantee non-invertibility of the mapping between observed market data and the underlying shocks to agents' information sets. When these conditions are satisfied, agents remain asymmetrically informed in equilibrium and must ‘forecast the forecasts of others’. An econometrician, who incorrectly imposes a homogeneous beliefs equilibrium, will find that the asset price displays violations of variance bounds, predictability of excess returns, and rejections of cross-equation restrictions.

Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (27)

Downloads: (external link)
http://hdl.handle.net/10.1093/restud/rdt051 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Heterogenous Beliefs and Tests of Present Value Models (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:81:y:2014:i:3:p:1137-1163

Access Statistics for this article

The Review of Economic Studies is currently edited by Thomas Chaney, Xavier d’Haultfoeuille, Andrea Galeotti, Bård Harstad, Nir Jaimovich, Katrine Loken, Elias Papaioannou, Vincent Sterk and Noam Yuchtman

More articles in The Review of Economic Studies from Review of Economic Studies Ltd
Bibliographic data for series maintained by Oxford University Press ().