- I. The Economy with Heterogenous Beliefs
- A. The Model
- B. Disagreement
- C. Investors’ Preferences, Financial Markets and Equilibrium
- D. Pricing of Financial Assets
- II. Model Predictions
- A. Firm Value and Firm Value Volatility
- B. Firm Value Risk-Neutral Skewness and Probability of Default
- C. Credit Spreads and the Volatility of Stock Returns
- D. Price of Equity and the Skewness of Stock Returns
- E. The Implied–Volatility Smile
- III. The Data Sets
- A. Bond Data
- B. Difference in Beliefs Index Data
- C. Option Data
- D. Stock Returns Data
- E. Control Variables
- IV. Empirical Analysis
- A. Corporate Credit Spreads
- B. Implied Volatility Smile
- C. No–Arbitrage Violations of Single–Factor Models
- D. Stock Returns
- V. Robustness
- A. Idiosyncratic Volatility
- B. Measures of Divergence of Opinions
- VI. Conclusion
- References
- Appendix
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