Why disagreement may not matter (much) for asset prices
A 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.
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- Fama, Eugene F. & French, Kenneth R., 2007. "Disagreement, tastes, and asset prices," Journal of Financial Economics, Elsevier, vol. 83(3), pages 667-689, March.
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- Alexander David, 2008. "Heterogeneous Beliefs, Speculation, and the Equity Premium," Journal of Finance, American Finance Association, vol. 63(1), pages 41-83, February. Full references (including those not matched with items on IDEAS)
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