Skip Navigation



Review of Finance Advance Access published online on March 22, 2008
Review of Finance, doi:10.1093/rof/rfm036
This Article
Right arrow Full Text
Right arrow Full Text (PDF)
Right arrow All Versions of this Article:
12/2/323    most recent
rfm036v1
Right arrow Alert me when this article is cited
Right arrow Alert me if a correction is posted
Services
Right arrow Email this article to a friend
Right arrow Similar articles in this journal
Right arrow Alert me to new issues of the journal
Right arrow Add to My Personal Archive
Right arrow Download to citation manager
Right arrowRequest Permissions
Google Scholar
Right arrow Articles by Gallmeyer, M.
Right arrow Articles by Hollifield, B.
Right arrow Search for Related Content
Social Bookmarking
Add to CiteULike   Add to Connotea   Add to Del.icio.us  
What's this?

Copyright © The Author 2008. Published by Oxford University Press on behalf of the European Finance Association.

An Examination of Heterogeneous Beliefs with a Short-Sale Constraint in a Dynamic Economy*

Michael Gallmeyer1 and Burton Hollifield2

1 Mays Business School, Texas A&M University
2 Tepper School of Business, Carnegie Mellon University

We study the effects of a market-wide short-sale constraint in a dynamic economy with heterogeneous beliefs. Imposing the constraint reduces the stock price if the optimistic investors' intertemporal elasticity of substitution (IES) is less than one and increases the stock price if the optimist's IES is greater than one. In calibrated examples, the optimist's market price of risk falls and the interest rate rises when the constraint binds. Imposing the constraint leads to a higher stock volatility if the optimist's IES is less than one and a lower stock volatility if the IES is greater than one.

JEL Classification: D51, G11, G12, G14

* We would like to thank Peter Bossaerts (the editor) and two anonymous referees as well as A. Cevdet Aydemir, Ravi Bansal, David Chapman, George Constantinides, Paul Ehling, Wayne Ferson, Francisco Gomes, John Heaton, Bjarne Astrup Jensen, Pascal Maenhout, Marcel Rindisbacher, Tan Wang, and the seminar participants at several universities and conferences for useful comments.


Add to CiteULike CiteULike   Add to Connotea Connotea   Add to Del.icio.us Del.icio.us    What's this?


This article has been cited by other articles:


Home page
 REV FINANC STUDHome page
W. Xiong and H. Yan
Heterogeneous Expectations and Bond Markets
Rev. Financ. Stud., November 15, 2009; (2009) hhp091v1.
[Abstract] [Full Text] [PDF]


Disclaimer: Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department.