Price Reaction to Information with Heterogeneous Beliefs and Wealth Effects: Underreaction, Momentum, and Reversal

• 成果类型: Article
• 署名作者: Ottaviani, Marco; Sorensen, Peter Norman
• 署名单位: Bocconi University; Bocconi University; University of Copenhagen
• 刊物名称: AMERICAN ECONOMIC REVIEW
• ISSN/ISSBN: 0002-8282
• DOI: 10.1257/aer.20120881
• 发表日期: 2015
• 页码: 1-34
• 关键词: SPECULATIVE INVESTOR BEHAVIOR; stock-market; RISK; aggregation; DISAGREEMENT; probability; preferences; divergence; EFFICIENCY; opinion

摘要

This paper analyzes how asset prices in a binary market react to information when traders have heterogeneous prior beliefs. We show that the competitive equilibrium price underreacts to information when there is a bound to the amount of money traders are allowed to invest. Underreaction is more pronounced when prior beliefs are more heterogeneous. Even in the absence of exogenous bounds on the amount that traders can invest, prices underreact to information provided that traders become less risk averse as their wealth increases. In a dynamic setting, underreaction results in initial momentum and then reversal in the long run.