Speculative Behavior and Heterogeneous Expectations: Theory and Evidence

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Speculative Behavior and Heterogeneous Expectations: Theory and Evidence

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Cheolbeom Park () (National University of Singapore)

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Cheolbeom Park

Abstract

This paper demonstrates that the optimal willingness to pay for a stock is the payoff from holding the stock for one period when investors have different expectations, and that the willingness to pay can be represented as the sum of the expected present value of future dividends and the expected present value of the gap between the future equilibrium price and willingness to pay. This speculative behavior based on the awareness of heterogeneity in expectations is supported by the volatility test and the predictability of the dispersion in expectations across investors.

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Paper provided by National University of Singapore, Department of Economics in its series Departmental Working Papers with number wp0205.

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Length: 38 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:nus:nusewp:wp0205

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Find related papers by JEL classification:
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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This page was last updated on 2009-11-25.

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