Disagreement, information quality and asset prices
Date
2019-12-04
Authors
Xiouros, Costas
Zapatero, Fernando
Version
First author draft
OA Version
Citation
Xiouros, Costas and Zapatero, Fernando, Disagreement, Information Quality and Asset Prices (October 30, 2019). Available at SSRN: https://ssrn.com/abstract=3489502 or http://dx.doi.org/10.2139/ssrn.3489502
Abstract
We solve analytically a pure exchange economy with a continuum of agents, disagreement, time-varying information quality, and reference-dependent preferences. The general equilibrium model yields stationary dynamics and explains the equity premium, the stock price volatility, and empirical relations between forecast dispersion and various properties of asset prices. We quantify the implications of the model, which shows that the usual asset pricing channels of disagreement in the literature are not quantitatively important, while information quality in the presence of disagreement generates significant excess volatility and contributes substantially to explaining the equity premium.