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Speculative Behavior and Heterogeneous Expectations: Theory and Evidence

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Author Info
Cheolbeom Park () (National University of Singapore)

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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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File URL: http://www.fas.nus.edu.sg/ecs/pub/wp/wp0205.pdf
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Publisher Info
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
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Handle: RePEc:nus:nusewp:wp0205

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Web page: http://www.fas.nus.edu.sg/ecs/index.html
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Related research
Keywords: Speculative behavior Heterogeneous expectations Volatility test Predictability of the dispersion in expectations

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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    Other versions:
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    Other versions:
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  13. John Y. Campbell, Robert J. Shiller, 1988. "The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 1(3), pages 195-228. [Downloadable!] (restricted)
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  15. Harrison, J Michael & Kreps, David M, 1978. "Speculative Investor Behavior in a Stock Market with Heterogeneous Expectations," The Quarterly Journal of Economics, MIT Press, vol. 92(2), pages 323-36, May. [Downloadable!] (restricted)
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    Other versions:
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