The Market View
30 Pages Posted: 6 Mar 2021
Date Written: January 7, 2021
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: Suggested Citation