Heterogeneous beliefs, wealth accumulation, and asset price dynamics

Article Abstract:

A model of asset markets with two types of investors is developed and examined to study the asset price dynamics. It is demonstrated that the introduction of simple heterogeneity of beliefs into a simple model of asset pricing generates a generous dynamic of asset returns. One type of investor may ultimately have a significantly greater wealth than the other investors, depending on the parameter values of the model. However, it is also possible for two types of investors to exist together on a long-term basis despite their influence on the asset turns.

Prices and rates, Wealth, Assets (Accounting)

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The term structure of interest rates in a pure exchange economy with heterogeneous investors

Article Abstract:

An equilibrium model of the term structure of interest rates when investors have heterogeneous preferences is presented. The model considers a simple pure exchange economy with two classes of investors with different relative risk aversion preferences and provides closed-form solutions to bond prices. The model is applied to the examination of the effect of preference heterogeneity on the behavior of bond yields. It is also applied to cases where there are more than two classes of investors.

Beliefs, opinions and attitudes, Interest rates

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Explaining bond returns in heterogeneous agent models: The importance of higher-order moments

Article Abstract:

Economic models of discount bond returns are evaluated. Deficiencies in the models in dealing with dynamic properties are discussed.

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