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Investor sentiment, heterogeneous agents and asset pricing model

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  • Li, Jinfang

Abstract

This paper presents a sentiment asset pricing model with heterogeneous agents. In the model, the sentiment equilibrium prices have a number proportion-weighted average structure among heterogeneous investors, and idiosyncratic sentiments can have a significant impact on the equilibrium price at the aggregate level because the demand function is nonlinear in the sentiment. Moreover, we also find that even if the individual sentiment affects the demand in a linear way, the sentiment may still has a significant effect on the equilibrium price in the aggregate due to the fluctuation of the number distribution of investors. The model could offer a partial explanation to the financial anomaly of overreaction.

Suggested Citation

  • Li, Jinfang, 2017. "Investor sentiment, heterogeneous agents and asset pricing model," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 504-512.
    • Handle: RePEc:eee:ecofin:v:42:y:2017:i:c:p:504-512
    DOI: 10.1016/j.najef.2017.08.006
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    Cited by:

    1. Li, Jinfang, 2019. "Sentiment trading, informed trading and dynamic asset pricing," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 210-222.
    2. Wang, Hailong & Hu, Duni & Ma, Chaoqun & Cheng, Fengchao, 2020. "Disagreements with noisy signals and asset pricing," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    3. Jiang, Shanshan & Fan, Hong, 2018. "Credit risk contagion coupling with sentiment contagion," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 512(C), pages 186-202.
    4. Li, Jinfang, 2022. "The sentiment pricing dynamics with short-term and long-term learning," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).
    5. Jinfang Li, 2021. "The term structure effects of individual stock investor sentiment on excess returns," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 1695-1705, April.

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    More about this item

    Keywords

    Heterogeneous sentiments; Asset pricing; Aggregation; Overreaction;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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