The following observations are as follows that allow authors to obtain useful information that the authors have acquired. Savvy investors earn positive alphas, while uninformed investors earn negative alphas. And while the price effects of decisions made by investors who have a preference for assets as consumer goods are similar to the price effects of decisions made by misinformed investors, the price effects induced by misinformed investors are temporary, while those created by investors with different tastes are not. In addition, the authors conclude that the net effect of costs on market efficiency is unclear, as costs are distortions of equal opportunities (i.e. they hinder both ill-informed and informed investors). Market equilibrium also regulates the price in the range of investors` preferences or tastes for assets considered consumer goods. As with misinformed investors, asset prices must trigger an overweight on the part of investors who do not attribute any benefit to consumer assets, offsetting the underweight of those who do. The equilibrium is only partial (i.e. prices do not correspond to the CAPM) if the amount of specific assets held by the two groups is not perfectly balanced. In an intertemporal environment, equilibrium pricing exists when the investor`s decision-making is determined by the covariances of asset returns with common return factors or state variables. Two unrealistic assumptions underlie standard asset valuation models. The first assumption is that investors are in complete agreement on the probability distributions of future wealth payments.
The second assumption is that fixed assets are not used for personal consumption and are selected solely on the basis of their expected payments. The authors develop a simple framework for assessing how, if both assumptions are dropped, asset prices will be affected. The authors, known for their three-factor model of asset prices, provide a simple framework for exploring how disagreements over asset payments and a preference for assets as consumer goods can affect securities prices. Their approach is based on a market equilibrium argument that suggests that both conditions have an impact on price, although the magnitude of these effects is not certain. The authors` discussion of how disagreements affect price is done on a market equilibrium platform. In a steady state, the price of informed investors as a whole leads to an overweight of underweight assets by ill-informed investors (relative to the market) (relative to the market). However, when investors are reluctant to take risks, the balance is only partial and prices retain traces of misinformation. Regardless of the persistent actions of informed investors, equilibrium can only be achieved when misinformed investors are informed. In other words, savvy investors have no incentive to rebalance prices. The authors characterize their argument as a market equilibrium version of Shleifer and Vishny`s “limits to arbitration” argument (Journal of Finance, 1997). The authors perform a series of calibrations of their model to determine the extent to which expected returns and misinformed beliefs affect prices. Benchmarks show that distortions of expected returns can be significant when misinformed investors or investors who value assets as consumer goods constitute a significant invested asset, invest in a wide range of assets, take positions very different from the market portfolio, or underweight assets with returns that are not strongly correlated with the returns on the assets they overweight.
While the impact on expected returns may be significant, the impact on price has not been determinable. The well-known capital asset valuation model (CAPM) introduced by Sharpe in 1964 and its subsequent iterations (the most notable of which is Merton`s intertemporal CAPM, the ICAPM) are problematic because they do not explain average equity returns and are primarily tested by the inability to grasp the impact of value premium and momentum on price. The literature examines the weaknesses of the Standard Model in terms of disunity in disbursements – which began 40 years ago with Lintner (Review of Economics and Statistics, 1965) – as well as in terms of wealth consumption. The literature on “disagreements” is usually largely mathematical in nature, which the authors try to overcome by focusing on a simple approach. And the literature on “taste” cites reasons for holding assets that are not just pure play with their expected payments, including holding employer shares, socially responsible investing, and home bias. Standard asset valuation models assume that: (i) investors fully agree on the probability distribution of future payments to assets; and (ii) investors select assets solely based on expected payments; that is, fixed assets are not also consumer goods. Both assumptions are unrealistic. We provide a simple framework for exploring how disagreements and likes for assets as consumer goods can affect asset prices. Disagreement, Tastes, and Asset Prices (Digest Summary) Journal of Financial Economics is currently published by G. William Schwert CFA Institute Journal Review August 2007 Volume 37 Number 3 Related articles:This article may be available elsewhere in EconPapers: Search for articles with the same title. Date: 2007 References: View references in EconPapers See the full list of CitEc citations references: View citations in EconPapers (81) Track citations by RSS feed Downloads: (external link)www.sciencedirect.com/science/article/pii/S0304-405X(06)00195-4 Full text for ScienceDirect subscribers only Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML / Text We are grateful for John Cochrane`s comments, Kent Daniel, Thomas Knox, Tobias Moskowitz, René Stulz, Richard Thaler, Joel Vanden, participants in the NBER Workshop on Behavioural Finance and two anonymous examiners. Persistenter Link: EconPapers.repec.org/RePEc:eee:jfinec:v:83:y:2007:i:3:p:667-689 Weitere Artikel im Journal of Financial Economics von ElsevierBibliographische Daten für Reihen von Haili He ().
Eugene F. FamaPhD Kenneth R. Français Journal of Financial Economics Journal of Financial Economics, 2007, Bd. 83, Heft 3, 667-689 Fama E Français K 2007 Disagreement, Tastes, and Asset Prices Journal of Financial Economics Bd. 83 Nr. 3. . . .
