Journal of Finance Vol. 73 No. 3 2018

Belief Dispersion in the Stock Market

Adem Atmaz^{1,2,3,4,5,6,7}; Suleyman Basak^8,4

¹ University of Technology Sydney · ² The University of Sydney · ³ Hong Kong Polytechnic University · ⁴ City University of Hong Kong · ⁵ UNSW Sydney · ⁶ University of Oxford · ⁷ University of Southampton · ⁸ Bar-Ilan University

Abstract

We develop a dynamic model of belief dispersion with a continuum of investors differing in beliefs. The model is tractable and qualitatively matches many of the empirical regularities in a stock price and its mean return, volatility, and trading volume. We find that the stock price is convex in cash‐flow news and increases in belief dispersion, while its mean return decreases when the view on the stock is optimistic, and vice versa when pessimistic. Moreover, belief dispersion leads to higher stock volatility and trading volume. We demonstrate that otherwise identical two‐investor heterogeneous‐beliefs economies do not necessarily generate our main results.

DOI

10.1111/jofi.12618

Volume

73

Issue

3

Pages

1225-1279

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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