Research in behaviour finance has provided seemingly persuasive evidences that overconfidence affects asset prices. We provide a model with model uncertainty and overconfidence in which overconfidence could have no effect on asset prices.

We propose a new measure of market liquidity based on the investors' optimal searching behaviour. Thus, we add a wealth filter on Pagano (1989)'s measure of liquidity to build the strong tie between endogenous market participation and investor wealth, as has been documented by empirical works.