Belief Dispersion in the Stock Market

57 Pages Posted: 30 Oct 2014 Last revised: 18 May 2017

See all articles by Adem Atmaz

Adem Atmaz

Purdue University - Krannert School of Management

Suleyman Basak

London Business School; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2017


We develop a dynamic model of belief dispersion with a continuum of investors differing in beliefs. The model is tractable and qualitatively matches many of the empirical regularities in a stock price, its mean return, volatility, and trading volume. We find that the stock price is convex in cash-flow news and increases in belief dispersion, while its mean return decreases when the view on the stock is optimistic, and vice versa when pessimistic. Moreover, belief dispersion leads to a higher stock volatility and trading volume. We demonstrate that otherwise identical two-investor heterogeneous-beliefs economies do not necessarily generate our main results.

Appendix is available at:

Keywords: Asset pricing, belief dispersion, heterogeneous beliefs, stock price, mean return, volatility, trading volume, Bayesian learning

JEL Classification: D53, G12

Suggested Citation

Atmaz, Adem and Basak, Suleyman, Belief Dispersion in the Stock Market (May 2017). Journal of Finance, Forthcoming, Available at SSRN: or

Adem Atmaz (Contact Author)

Purdue University - Krannert School of Management ( email )

403 West State Street
West Lafayette, IN 47907
United States


Suleyman Basak

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
44 (0)20 7000 8256 (Phone)
44 (0)20 7000 8201 (Fax)


Centre for Economic Policy Research (CEPR)

United Kingdom

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