I study the effect of heterogeneous beliefs about asset prices on the long-term behavior of financial markets. Starting from the ideas of Abreu and Brunnermeier (2003), a two-dimensional system of differential equations is developed. The first dynamic variable is the asset price growth rate. The...

We show that updates to macroeconomic expectations among professional forecasters exhibit an offsetting pattern where increases in current-quarter predictions lead to decreases in three quarter ahead predictions. We further document evidence of individual overreaction at the quarterly frequency...

Can prices convey information about the fundamental value of an asset? This paper considers this problem in relation to the dynamic properties of the fundamental (whether it is constant or time-varying) and the structure of information available to agents. Risk-averse traders receive two...

We experimentally investigate how price expectations are formed in a large asset market where subjects' only task is to forecast the future price of a risky asset. The realized prices depend on these expectations. We observe small (6 participants) and large markets (about 100 participants). In...