Demand Disagreement

60 Pages Posted: 28 Dec 2017 Last revised: 5 Apr 2023

See all articles by Christian Heyerdahl-Larsen

Christian Heyerdahl-Larsen

BI Norwegian Business School

Philipp K. Illeditsch

Texas A&M University - Mays Business School - Finance Department

Date Written: November 23, 2020


We show that disagreement about future yields cannot be explained by disagreement about fundamental macroeconomic variables. This disconnect is inconsistent with models with differences in beliefs as equilibrium imposes a tight connection between asset return disagreement and fundamental disagreement, leading to a ``disagreement correlation’’ puzzle. We propose a model of disagreement about future asset demand – demand disagreement - and show that the model can rationalize the low correlation between asset returns and fundamentals and return disagreement driven by disagreement about future discount rates independent of macroeconomic fundamentals, while at the same time being consistent with several asset pricing facts.

Keywords: Disagreement correlation puzzle, correlation puzzle, demand shocks, demand disagreement, heterogeneous beliefs and time preferences, asset pricing puzzles, trading volume.

JEL Classification: D51, G10, G11, G12

Suggested Citation

Heyerdahl-Larsen, Christian and Illeditsch, Philipp K., Demand Disagreement (November 23, 2020). Available at SSRN: or

Christian Heyerdahl-Larsen (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442

Philipp K. Illeditsch

Texas A&M University - Mays Business School - Finance Department ( email )

Wehner Building 351Q
4113 TAMU | 210 Olsen Blvd
College Station, TX Brazos County 77843-4218
United States

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