In this paper we study the properties of an asset pricing model where boundedly rational agents respond to incoming news about economic fundamentals such as future dividends. Our aim is to characterize the resulting fluctuations of the market price around the time-varying underlying fundamental...

We introduce local and foreign investors in a simple model of speculative attacks. Local investors have less tolerance for overvaluation of the fixed exchange rate because they tend to incur lower costs when taking a short position and possess better information, and because of moral hazard...

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...