Disagreement in a multi-asset market

Xue-Zhong He, Lei Shi

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)


This paper provides a simple framework to study the effect of disagreement in a multi-asset market equilibrium by considering two agents who disagree about expected returns, variances, and correlation of returns of two risky assets. When agents' subjective beliefs are characterized by mean preserving spreads of a benchmark homogeneous belief, we show that the effect of the disagreement does not cancel out in general and the effect in a multi-asset market can be very different from a single asset market. In particular, the market risk premium can increase and the risk-free rate can decrease significantly even when the market is overoptimistic and overconfident.

Original languageEnglish
Pages (from-to)357-373
Number of pages17
JournalInternational Review of Finance
Issue number3
Publication statusPublished - Sept 2012
Externally publishedYes


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