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Heterogeneous beliefs and diversification discount

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  • Tong, Zhuoyuan
  • Wei, Xu

Abstract

In an asset pricing model with investors’ heterogeneous beliefs, this work shows that the share price of a parent firm is lower than the sum of share prices of its subsidiary firms. This result provides an explanation for the well-documented “diversification discount” puzzle.

Suggested Citation

  • Tong, Zhuoyuan & Wei, Xu, 2018. "Heterogeneous beliefs and diversification discount," Finance Research Letters, Elsevier, vol. 27(C), pages 148-153.
    • Handle: RePEc:eee:finlet:v:27:y:2018:i:c:p:148-153
    DOI: 10.1016/j.frl.2018.02.006
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    References listed on IDEAS

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    More about this item

    Keywords

    Heterogeneous beliefs; Diversification discount; Short-sales constraints;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G1 - Financial Economics - - General Financial Markets

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