Asset pricing with heterogeneous agents and long-run risk

Walter Pohl, Karl Schmedders*, Ole Wilms

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

9 Scopus citations


This paper shows that belief differences have strong effects on asset prices in consumption-based asset-pricing models with long-run risks. Belief heterogeneity leads to time-varying consumption and wealth shares of the agents. This time variation can resolve several asset-pricing puzzles, including the large countercyclical variation of expected risk premia, the volatility of the price-dividend ratio, the predictability of cash flows and returns, and the large predictability of returns in recessions. These findings show that belief differences, a widely observed attribute of investors, significantly improve the explanatory power of long-run risk asset-pricing models.

Original languageEnglish (US)
Pages (from-to)941-964
Number of pages24
JournalJournal of Financial Economics
Issue number3
StatePublished - Jun 2021


  • Asset pricing
  • Belief differences
  • Heterogeneous agents
  • Long-run risk
  • Recursive preferences

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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