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Divergence of Opinion in Complete Markets: A Note

Divergence of Opinion in Complete Markets: A Note ABSTRACT We consider an Arrow‐Debreu model with agents who have different subjective probabilities. In general, asset prices will depend only on aggregate consumption and the distribution of subjective probabilities in each state of nature. If all agents have identical preferences then an asset with “more dispersed” subjective probabilities will have a lower price than an asset with less dispersed subjective probabilities if risk aversion does not decline too rapidly. It seems that this condition is likely to be met in practice, so that increased dispersion of beliefs will generally be associated with reduced asset prices in a given Arrow‐Debreu equilibrium. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Divergence of Opinion in Complete Markets: A Note

The Journal of Finance , Volume 40 (1) – Mar 1, 1985

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References (11)

Publisher
Wiley
Copyright
1985 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1985.tb04951.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT We consider an Arrow‐Debreu model with agents who have different subjective probabilities. In general, asset prices will depend only on aggregate consumption and the distribution of subjective probabilities in each state of nature. If all agents have identical preferences then an asset with “more dispersed” subjective probabilities will have a lower price than an asset with less dispersed subjective probabilities if risk aversion does not decline too rapidly. It seems that this condition is likely to be met in practice, so that increased dispersion of beliefs will generally be associated with reduced asset prices in a given Arrow‐Debreu equilibrium.

Journal

The Journal of FinanceWiley

Published: Mar 1, 1985

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