Why Disagreement May Not Matter (much) for Asset Prices
AbstractA simple consumption-based two-period model is used to study the (theoretical) effects of disagreement on asset prices. Analytical and numerical results show that individual uncertainty has a much larger effect on risk premia than disagreement if (i) the risk aversion is reasonably high and (ii) individual uncertainty is not much smaller than disagreement. Evidence from survey data on beliefs about output growth suggests that the latter is more than satisfied.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2008 with number 2008-11.
Length: 19 pages
Date of creation: May 2008
Date of revision:
riskfree rate; implied volatility; Survey of Professional Forecasters;
Other versions of this item:
- Söderlind, Paul, 2009. "Why disagreement may not matter (much) for asset prices," Finance Research Letters, Elsevier, vol. 6(2), pages 73-82, June.
- C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-06-13 (All new papers)
- NEP-DGE-2008-06-13 (Dynamic General Equilibrium)
- NEP-MAC-2008-06-13 (Macroeconomics)
- NEP-UPT-2008-06-13 (Utility Models & Prospect Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Barsky, Robert B, et al, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 537-79, May.
- Dean Croushore, 1993. "Introducing: the survey of professional forecasters," Business Review, Federal Reserve Bank of Philadelphia, issue Nov, pages 3-15.
- Hong, Harrison & Stein, Jeremy, 2007.
"Disagreement and the Stock Market,"
2894690, Harvard University Department of Economics.
- Giordani, Paolo & Soderlind, Paul, 2003.
"Inflation forecast uncertainty,"
European Economic Review,
Elsevier, vol. 47(6), pages 1037-1059, December.
- Alexander David, 2008. "Heterogeneous Beliefs, Speculation, and the Equity Premium," Journal of Finance, American Finance Association, vol. 63(1), pages 41-83, 02.
- John Y. Campbell, 2002.
"Consumption-Based Asset Pricing,"
Harvard Institute of Economic Research Working Papers
1974, Harvard - Institute of Economic Research.
- Lintner, John, 1969. "The Aggregation of Investor's Diverse Judgments and Preferences in Purely Competitive Security Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 4(04), pages 347-400, December.
- Evan W. Anderson & Eric Ghysels & Jennifer L. Juergens, 2005. "Do Heterogeneous Beliefs Matter for Asset Pricing?," Review of Financial Studies, Society for Financial Studies, vol. 18(3), pages 875-924.
- Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
- Mordecai Kurz & Maurizio Motolese, 2011.
"Diverse beliefs and time variability of risk premia,"
Springer, vol. 47(2), pages 293-335, June.
- Mordecai Kurz & Maurizio Motolese, 2007. "Diverse Beliefs and Time Variability of Risk Premia," Discussion Papers 06-044, Stanford Institute for Economic Policy Research.
- Rubinstein, Mark, 1974. "An aggregation theorem for securities markets," Journal of Financial Economics, Elsevier, vol. 1(3), pages 225-244, September.
- Fama, Eugene F. & French, Kenneth R., 2007. "Disagreement, tastes, and asset prices," Journal of Financial Economics, Elsevier, vol. 83(3), pages 667-689, March.
- Varian, Hal R, 1985. " Divergence of Opinion in Complete Markets: A Note," Journal of Finance, American Finance Association, vol. 40(1), pages 309-17, March.
- Söderlind, Paul, 2009. "The C-CAPM without ex post data," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 721-729, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joerg Baumberger).
If references are entirely missing, you can add them using this form.