Disagreement, correlation and asset prices

When people agree to disagree, how does the disagreement affect asset prices? Within an equilibrium framework with two agents, two risky assets and a riskless bond, we analyze the joint impact of disagreement about expected payoff, variance and correlation, and compare prices with benchmark prices in a market with homogeneous beliefs.

► We analyse the impact of disagreement in a market with two risky assets and a riskless bond. ► Agents disagree about expected payoff, variance and correlation. ► Spillover effect: disagreement about one asset can affect the consensus belief of both assets. ► Prices are generally different from the benchmark prices in a market with homogeneous beliefs.