The Market View

30 Pages Posted: 6 Mar 2021

See all articles by Christian Heyerdahl-Larsen

Christian Heyerdahl-Larsen

Indiana University - Kelley School of Business - Department of Finance

Philipp K. Illeditsch

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

Date Written: January 7, 2021

Abstract

When investors disagree and trade on their views about asset returns, market prices reflect the wealth/consumption share weighted average belief about risk premia, where more accurate, risk tolerant, or patient investors carry a larger weight. We explore the properties of this market view, and show that many puzzling properties of survey measures can be reconciled within disagreement models. For instance, a model with disagreement about output growth matches the negative correlation between statistical and survey-based measures of the risk premium, the higher variance and lower persistence of statistical measures of the risk premium and the appearance of return extrapolation.

Keywords: market view, consensus view, statistical view, stock market return surveys, heterogenous agents models, disagreement, survey puzzles

JEL Classification: D51, G10, G11, G12

Suggested Citation

Heyerdahl-Larsen, Christian and Illeditsch, Philipp K., The Market View (January 7, 2021). Available at SSRN: https://ssrn.com/abstract=3762259 or http://dx.doi.org/10.2139/ssrn.3762259

Christian Heyerdahl-Larsen (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

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

HOME PAGE: http://https://sites.google.com/view/philippilleditsch

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