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RFS Advance Access originally published online on May 25, 2005
Review of Financial Studies 2005 18(3):875-924; doi:10.1093/rfs/hhi026
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Right arrow D83 - Search; Learning; Information and Knowledge; Communication; Belief
Right arrow D84 - Expectations; Speculations
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© The Author 2005. Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oupjournals.org

Do Heterogeneous Beliefs Matter for Asset Pricing?

Evan W. Anderson
University of North Carolina - Chapel Hill

Eric Ghysels
University of North Carolina - Chapel Hill

Jennifer L. Juergens
Arizona State University

Address correspondence to Jennifer L. Juergens: Department of Finance, W.P. Carey School of Business, Arizona State University, Tempe, AZ 85287, or email: jennifer.juergens{at}asu.edu

We study how heterogeneous beliefs affect returns and examine whether they are a priced factor in traditional asset pricing models. To accomplish this task, we suggest new empirical measures based on the disagreement among analysts about expected earnings (short-term and long-term) and show they are good proxies. We first establish that the heterogeneity of beliefs matters for asset pricing and then turn our attention to estimating a structural model in which we use the forecasts of financial analysts to proxy for agents’ beliefs. Finally, we investigate whether the amount of heterogeneity in analysts’ forecasts can help explain asset pricing puzzles.


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