2000 | OriginalPaper | Chapter
Bulls and Bears: Heterogeneous Expectations
Author : Dr. Frank Riedel
Published in: Imperfect Information and Investor Heterogeneity in the Bond Market
Publisher: Physica-Verlag HD
Included in: Professional Book Archive
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“It is differences in opinion that makes horse races”, Mark Twain says. Following this saying, I study differences in expectations among agents in this chapter. Agents conform that the state of the world is described by a diffusion model as in Chapter 1. They differ, however, in their prior beliefs about some unknown parameters of the model. To give an example, the drift of the growth rate may be unknown, as in the preceding chapter, and some agents, call them bulls, might hold more optimistic views about this drift than others.