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Do Heterogeneous Beliefs Matter for Asset Pricing?

Evan W. Anderson1; Eric Ghysels; Jennifer L. Juergens2

1 University of North Carolina at Chapel Hill · 2 Arizona State University

Review of Financial Studies 2005

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.

DOI
10.1093/rfs/hhi026
Volume
18 (3)
Pages
875-924
Language
en
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