Heterogeneous beliefs among market participants can lead to questionable speculative trading that goes beyond any risk … pricing for ambiguous contracts, without compromising legitimate risk-hedging activities. While Arrow-Debreu equilibria … generally fail to achieve belief-neutral efficiency, we establish a modified version of the first welfare theorem in which …

We propose a single-factor asset pricing model based on an indicator function of consumption growth being less than its …

create the efficiency factor. Secondly, we estimate the prices of risk tied to the four factors using ordinary least squares … the performance of the model, including and omitting the efficiency factor. The results show that the efficiency factor … conclude that the efficiency index may be used as a factor in asset pricing models. …