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Do Heterogeneous Beliefs Matter for Asset Pricing?

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  • Evan W. Anderson
  • Eric Ghysels
  • Jennifer L. Juergens

Abstract

We study how heterogeneous beliefs affect returns and examine whether they are a priced factor in traditional asset pricing models. To accomplish this task, we suggest new empirical measures based on the disagreement among analysts about expected earnings (short-term and long-term) and show they are good proxies. We first establish that the heterogeneity of beliefs matters for asset pricing and then turn our attention to estimating a structural model in which we use the forecasts of financial analysts to proxy for agents' beliefs. Finally, we investigate whether the amount of heterogeneity in analysts' forecasts can help explain asset pricing puzzles. Copyright 2005, Oxford University Press.

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  • 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.
    • Handle: RePEc:oup:rfinst:v:18:y:2005:i:3:p:875-924
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    More about this item

    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
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

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