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The Effects of Heterogeneous Beliefs on a Risky Asset's Price and Trading Volume

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This paper examines the effects of different opinions among investors on a risky asset's price and trading volume in a two-period, two-person general equilibrium setting. A comparative static analysis predicts the following: Assuming that investors differ only in subjective probability beliefs about future security payoffs, an increased dispersion of beliefs will decrease the asset price and increase the trading volume in the empirically plausible range of the relative risk aversion coefficient.

Abstract

Ⅰ. Introduction

Ⅱ. The Model

Ⅲ. The Effects of Heterogeneous Beliefs

Ⅳ. Concluding Remarks

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