Heterogeneous Beliefs , Trading Risk , and the Equity Premium ∗

@inproceedings{David2005HeterogeneousB,
  title={Heterogeneous Beliefs , Trading Risk , and the Equity Premium ∗},
  author={Alexander Victor Anand David and John M. Olin},
  year={2005}
}
Portfolios of agents who have heterogeneous beliefs about fundamental growth face an exposure to ‘trading risk’, the risk of incurring losses due to equilibrium prices responding to beliefs of other agents. Agents with a coefficient of relative risk aversion of less than one have a ‘speculative’ demand for risky assets and a desire to save more in periods of high dispersion and low disagreement between their models, times of high trading risk. Calibrated to fundamentals and dispersion of… CONTINUE READING

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