We study the disagreement of foreign exchange (FX) dealers using proprietary survey data on dealers' price quotes of short- and long-tenor currency derivatives. Dispersion among dealers is the highest at short tenors, where heterogeneous information is of great relevance, and is much lower at...

The paper develops a model of bubbles that can be taken to the data and explain the behavior of asset prices and their statistics. We depart from the rational expectations framework and assume that investors are only boundedly rational. They observe the price process, but do not fully understand...

We demonstrate the asset pricing implications of investors' belief heterogeneity in the frequency of news arrival and its joint impact with heterogeneous beliefs about news content. Investors trade volatility derivatives against each other to speculate on the rate of news arrival: greater...

Portfolio constraints are widespread and have significant effects on asset prices. This paper studies the effects of constraints in a dynamic economy populated by investors with different risk aversions and beliefs about the rate of economic growth. The paper provides a comparison of various...

We study general equilibrium in a Lucas (1978) economy with one consumption good and two investors with heterogeneous risk aversions and beliefs about aggregate consumption growth rate, and portfolio constraints. We provide a comprehensive comparison of various constraints, and show which of...

We theoretically analyze how index investing affects financial markets using a dynamic exchange economy with heterogeneous investors and two Lucas trees. We identify two effects of indexing: lockstep trading of stocks increases market volatility and stock return correlations but reduction in...