We develop a model in which investors have heterogeneous beliefs about both the mean and the risk of future signals and the final stock payoff. As investors who perceive the lowest risk vary across different periods, the overall perception of the market risk is reduced in an economy with dynamic...

This paper reviews the history of the China Bond market, takes a look at its current market structure, and examines its market performance and market prospects. Domestic commercial banks are dominant investors in the interbank market, but foreign investors have limited access to the market at...

We derive an equilibrium price that converges to be strong-form informationally efficient in the original Grossman-Stiglitz model (1980). Specifically, we show that when the private signal converges to be perfect or traders converge to be risk neutral, there exists a unique overall equilibrium...

We analyze how speculative financial innovation affects stock prices, option prices, risk premium, market liquidity, and investor welfare in an economy with heterogeneous beliefs. When investors disagree about the covariance of the newly introduced stocks with the original stocks, we show that...

When investors have differences of opinion about the payoffs of a stock, Harrison and Kreps (1978) demonstrate the existence of a speculative bubble in the stock price, that is, the stock price can exceed the valuation of the most optimistic investor. A crucial condition that supports this...

Asset substitution and underinvestment are two of the most discussed agency problems in finance. A recent empirical study by Graham and Harvey (2001), however, finds little evidence that corporate executives are concerned about asset substitution and underinvestment problems when they make...