Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5054448 | Economic Modelling | 2013 | 6 Pages |
Abstract
The systematic and important role of investor sentiment has been supported by some recent empirical and theoretical literatures. In this paper, we present a dynamic asset pricing model with heterogeneous sentiments and we find that the equilibrium stock price is the wealth-share-weighted average of the stock prices that would prevail in an economy with one sentiment investor only. Moreover, heterogeneous sentiments induce fluctuations in the wealth distribution, which increases stock return volatility and induces mean reversion in stock returns. The model offers a partial explanation for the financial anomaly of mean reversion.
Keywords
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics