• I. The Economy with Heterogenous Beliefs
  • A. The Model
  • B. Disagreement
  • C. Investors’ Preferences, Financial Markets and Equilibrium
  • D. Pricing of Financial Assets
  • II. Model Predictions
  • A. Firm Value and Firm Value Volatility
  • B. Firm Value Risk-Neutral Skewness and Probability of Default
  • C. Credit Spreads and the Volatility of Stock Returns
  • D. Price of Equity and the Skewness of Stock Returns
  • E. The Implied–Volatility Smile
  • III. The Data Sets
  • A. Bond Data
  • B. Difference in Beliefs Index Data
  • C. Option Data
  • D. Stock Returns Data
  • E. Control Variables
  • IV. Empirical Analysis
  • A. Corporate Credit Spreads
  • B. Implied Volatility Smile
  • C. No–Arbitrage Violations of Single–Factor Models
  • D. Stock Returns
  • V. Robustness
  • A. Idiosyncratic Volatility
  • B. Measures of Divergence of Opinions
  • VI. Conclusion
  • References
  • Appendix