Asset Prices, Heterogeneous Expectations, and Limited Short Sales
This paper extends the Harrison-Kreps model by allowing limited short sales. The main results of this paper are: (1) investors pursue short-term gains when perceiving heterogeneous expectations; (2) important properties of the equilibrium price in the Harrison-Kreps model still hold even when limited short sales are allowed; (3) an increase in the dispersion of expectations about future dividends raises the risky asset price; and (4) an increase in short-sale costs also raises the risky asset price.
|Date of creation:||Jul 2003|
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