Conference Agenda
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Agenda Overview |
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Track T1-2: Beliefs, Disagreement, and Asset Prices
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Beliefs Heterogeneity and the Equity Term Structure 1Cleveland State University; 2University of Illinois at Urbana-Champaign What is the role of belief heterogeneity in shaping the equity term structure? We address this question by developing a general equilibrium model with habit formation in consumption and heterogeneity in both risk aversion and beliefs about the expected growth rate of the aggregate endowment. We demonstrate that the effects of belief heterogeneity are countercyclical, increasing equity yields during recessions and reducing them during expansions. These effects are also more pronounced in recessions than in expansions and are stronger for short-term assets than for long-term assets. Our findings underscore the significant role of belief heterogeneity in determining equity yields.
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