Can investors with incorrect beliefs survive in financial markets and have a significant impact on asset prices? My paper addresses this issue by analyzing a dynamic general equilibrium model where some investors have rational expectations while others have incorrect beliefs concerning the mean...

This article analyzes the implications of money illusion for investor behavior and asset prices in a securities market economy with inflationary fluctuations. Money illusion is modeled as an investor's partial overlooking the impact of inflation on the purchasing power of currency in his...

This paper studies the stock price formation in a pure-exchange economy populated by investors who disagree on the expected dividend growth rates. The homogenous beliefs equilibrium model of Cochrane, Longstaff, and Santa-Clara (2005) is extended to allow for belief heterogeneity, and the...

We investigate the role of quot;arbitrageurs,quot; who exploit price discrepancies between redundant securities. Arbitrage opportunities arise endogenously in an economy populated by rational, heterogeneous investors facing investment restrictions. We show that an arbitrageur alleviates these...

Price discrepancies, although at odds with mainstream finance, are persistent phenomena in financial markets. These apparent mispricings lead to the presence of arbitrageurs, who aim to exploit the resulting profit opportunities, but whose role remains controversial. This article investigates...

This article studies the dynamic behavior of security prices in the presence of investors' heterogeneous beliefs. We provide a tractable continuous-time pure-exchange model and highlight the mechanism through which investors' differences of opinion enter into security prices. In the...

This article analyzes the implications of money illusion for investor behavior and asset prices in a securities market economy with inflationary fluctuations. We provide a belief-based formulation of money illusion which accounts for the systematic mistakes in evaluating real and nominal...

Do heterogeneous beliefs amplify systemic shocks? I set out a tractable model that incorporates heterogeneous beliefs and assesses their interaction with endogenous risk. Incomplete information often leads investors to form heterogeneous beliefs when they optimize their portfolios; optimists...

Price discrepancies, although at odds with mainstream finance, are persistent phenomena in financial markets. These apparent mispricings lead to the presence of ‘arbitrageurs’, who aim to exploit the resulting profit opportunities, but whose role remains controversial. This article...

This article analyzes the implications of money illusion for investor behavior and asset prices in a securities market economy with inflationary fluctuations. We provide a belief-based formulation of money illusion which accounts for the systematic mistakes in evaluating real and nominal...