In a dynamic stochastic exchange economy where, due to beliefs heterogeneity, agents engage in speculative trade, I investigate the Market Selection Hypothesis that speculation rewards the agent with the most accurate beliefs. Assuming that agents maximize Epstein-Zin preferences and that...

In this paper, I consider an exchange economy with complete markets where agents have heterogeneous beliefs and, possibly, preferences, and investigate the Market Selection Hypothesis that speculation rewards the agent with the most accurate beliefs. First, on the methodological level, I derive...

We provide simple examples to illustrate how wealth-driven selection works in asset markets. Our examples deliver both good and bad news. The good news is that if individual assets demands are expressed as a fractions of wealth to be invested in each asset, e.g. because traders maximize an...

We consider an exchange economy with heterogeneous agents and multiple assets and investigate the coupled dynamics of assets' prices and agents' wealth. We assume that agents have heterogeneous beliefs and invest on each asset a fraction of wealth proportional to its expected dividends. Our main...