Download or read book Disagreement, Excess Volatility and Comovement in Stock Returns written by Xuezhong He and published by . This book was released on 2017 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes the impact of dispersion and correlation in investors' beliefs on the cross-section of volatilities and correlations in stock returns. Theoretically, we show that, in a baseline model with logarithmic agents and constant beliefs, there is a positive relationship between belief dispersion and stock volatility, and a positive relationship between belief correlation and return correlation. Extensions to CRRA preference, learning, and multiple agents show that the baseline results are generally robust for reasonable model parameter values. Empirically, we find supporting evidence on the theoretical predictions of the baseline model using analysts' forecasts of earnings as a proxy for investors' beliefs, suggesting that disagreement provides a plausible explanation to the excess volatility and comovement in stock returns.