|
|
|
|
||||
|
||||
Price Drift as an Outcome of Differences in Higher Order BeliefsSnehal BanerjeeNorthwestern University - Kellogg School of Management - Department of Finance Ron KanielUniversity of Rochester - Simon Graduate School of Business; CEPR Ilan KremerStanford Graduate School of Business May 2008 AFA 2007 Chicago Meetings Paper Review of Financial Studies, Forthcoming Abstract: Motivated by the insight of Keynes (1936) on the importance of higher order beliefs in financial markets, we examine the role of such beliefs in generating drift in asset prices. We show that in a dynamic setting, a higher order difference of opinions is necessary for heterogeneous beliefs to generate price drift. Such drift does not arise in standard difference of opinion models, since investors' beliefs are assumed to be common knowledge. Our results stand in contrast to Allen, Morris and Shin (2006) and others, as we argue that in rational expectation equilibria, heterogeneous beliefs do not lead to price drift.
Number of Pages in PDF File: 25 Keywords: price drift, momentum, rational, difference, opinion Accepted Paper SeriesDate posted: March 16, 2006 ; Last revised: November 30, 2009Suggested CitationContact Information
|
|
|||||||||||||||||||||||||||||||||
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
FAQ
Terms of Use
Privacy Policy
Copyright
This page was processed by apollo3 in 0.422 seconds
