Belief Dispersion in the Stock Market
Adem Atmaz and
Suleyman Basak ()
No 12056, CEPR Discussion Papers from C.E.P.R. Discussion Papers
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, 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 a higher stock volatility and trading volume. We demonstrate that otherwise identical two-investor heterogeneous-beliefs economies do not necessarily generate our main results.
Keywords: Asset Pricing; Bayesian learning.; belief dispersion; heterogeneous beliefs; mean return; stock price; trading volume; volatility (search for similar items in EconPapers)
JEL-codes: D53 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk and nep-mst
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Journal Article: Belief Dispersion in the Stock Market (2018)
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