Heterogeneous beliefs revolutionize portfolio analysis and asset pricing models.
The article explores how different beliefs among investors affect portfolio analysis and asset pricing. Traditional models assume all investors think the same way, but in reality, people have diverse opinions and behaviors. This can lead to inconsistencies in predicting market trends. For example, some investors don't diversify their portfolios as expected, and factors like value and size also impact returns. The study suggests that incorporating these differences in beliefs can help explain these discrepancies and improve economic models.