There are large cross-sectional differences in the probability and magnitude of mispricing among stocks. Mispricing is traditionally attributed to stock-specific frictions. We show that mispricing can be explained in a rational equilibrium where investors allocate investigative resources to...

We propose an extension of the class of rational expectations bubbles (REBs) to the more general rational beliefs setting of Kurz (1994a,b). In a potentially non-stationary but stationarizable environment, it is possible to hold more than one (small-r) “rational” expectation. When rational...