IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v49y2015icp11-18.html
   My bibliography  Save this article

Gurus and belief manipulation

Author

Listed:
  • Jouini, Elyès
  • Napp, Clotilde

Abstract

We analyze a model with two types of agents: standard agents and gurus, i.e. agents who have the ability to influence the other investors. Gurus announce their beliefs and act accordingly. Gurus are strategic: they take into account the impact of their announced beliefs on the other agents, hence on prices. Standard agents observe gurus' performances, choose a guru and follow her/his recommendations. Prices are determined through a classical Walras mechanism. The competition among gurus for attracting followers among standard agents is governed by the level of accuracy of their predictions. The strategic behavior leads to belief subjectivity and heterogeneity among the gurus even when gurus' initial beliefs coincide with the objective belief. Optimism as well as pessimism can both emerge. We find a positive correlation across the agents between pessimism and risk tolerance. The representative agent belief, or the consensus belief is pessimistic. As a consequence of the pessimistic bias at the aggregate level, the risk premium is greater than in the standard rational expectations equilibrium. We show on an example that this impact is significative. In a multi-asset framework, the impact is stronger on the riskier assets.

Suggested Citation

  • Jouini, Elyès & Napp, Clotilde, 2015. "Gurus and belief manipulation," Economic Modelling, Elsevier, vol. 49(C), pages 11-18.
    • Handle: RePEc:eee:ecmode:v:49:y:2015:i:c:p:11-18
    DOI: 10.1016/j.econmod.2015.03.013
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999315000760
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2015.03.013?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Wakker, Peter P, 2001. "Testing and Characterizing Properties of Nonadditive Measures through Violations of the Sure-Thing Principle," Econometrica, Econometric Society, vol. 69(4), pages 1039-1059, July.
    2. Jouini, Elyes & Napp, Clotilde, 2006. "Heterogeneous beliefs and asset pricing in discrete time: An analysis of pessimism and doubt," Journal of Economic Dynamics and Control, Elsevier, vol. 30(7), pages 1233-1260, July.
    3. Elyès Jouini & Clotilde Napp, 2007. "Consensus Consumer and Intertemporal Asset Pricing with Heterogeneous Beliefs," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(4), pages 1149-1174.
    4. Roland Benabou & Guy Laroque, 1992. "Using Privileged Information to Manipulate Markets: Insiders, Gurus, and Credibility," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(3), pages 921-958.
    5. repec:dau:papers:123456789/1051 is not listed on IDEAS
    6. Selima Mansour & Elyès Jouini & Clotilde Napp, 2006. "Is There a “Pessimisticâ€\x9D Bias in Individual Beliefs? Evidence from a Simple Survey," Theory and Decision, Springer, vol. 61(4), pages 345-362, December.
    7. Selima Benmansour & Elyès Jouini & Clotilde Napp, 2006. "Is there a pessimistic bias in individual beliefs ? Evidence from survey dat," Post-Print halshs-00163694, HAL.
    8. Yang, Chunpeng & Zhang, Rengui, 2013. "Dynamic asset pricing model with heterogeneous sentiments," Economic Modelling, Elsevier, vol. 33(C), pages 248-253.
    9. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-738, August.
    10. Bernard Dumas & Alexander Kurshev & Raman Uppal, 2009. "Equilibrium Portfolio Strategies in the Presence of Sentiment Risk and Excess Volatility," Journal of Finance, American Finance Association, vol. 64(2), pages 579-629, April.
    11. Elyès Jouini & Clotilde Napp & Yannick Viossat, 2013. "Evolutionary Beliefs and Financial Markets," Review of Finance, European Finance Association, vol. 17(2), pages 727-766.
    12. repec:dau:papers:123456789/341 is not listed on IDEAS
    13. Albert S. Kyle, 1989. "Informed Speculation with Imperfect Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(3), pages 317-355.
    14. Barberis, Nicholas & Shleifer, Andrei & Vishny, Robert, 1998. "A model of investor sentiment," Journal of Financial Economics, Elsevier, vol. 49(3), pages 307-343, September.
    15. Yang, Chunpeng & Li, Jinfang, 2013. "Investor sentiment, information and asset pricing model," Economic Modelling, Elsevier, vol. 35(C), pages 436-442.
    16. repec:dau:papers:123456789/310 is not listed on IDEAS
    17. Andrew B. Abel, "undated". "Asset Prices Under Heterogenous Beliefs: Implications for the Equity Premium," Rodney L. White Center for Financial Research Working Papers 09-89, Wharton School Rodney L. White Center for Financial Research.
    18. repec:dau:papers:123456789/1058 is not listed on IDEAS
    19. repec:dau:papers:123456789/5772 is not listed on IDEAS
    20. Selima Benmansour & Elyès Jouini & Clotilde Napp, 2006. "Is There a Pessimistic Bias in Individual Beliefs? Evidence from a Simple Survey," Post-Print halshs-00163625, HAL.
    21. Giordani, Paolo & Soderlind, Paul, 2006. "Is there evidence of pessimism and doubt in subjective distributions? Implications for the equity premium puzzle," Journal of Economic Dynamics and Control, Elsevier, vol. 30(6), pages 1027-1043, June.
    22. Yang, Chunpeng & Zhang, Rengui, 2013. "Sentiment asset pricing model with consumption," Economic Modelling, Elsevier, vol. 30(C), pages 462-467.
    23. Clotilde Napp & Elyès Jouini, 2006. "Heterogeneous Beliefs and Asset Pricing in Discrete Time," Post-Print halshs-00151536, HAL.
    24. repec:dau:papers:123456789/78 is not listed on IDEAS
    25. repec:dau:papers:123456789/1048 is not listed on IDEAS
    26. Follmer, Hans & Horst, Ulrich & Kirman, Alan, 2005. "Equilibria in financial markets with heterogeneous agents: a probabilistic perspective," Journal of Mathematical Economics, Elsevier, vol. 41(1-2), pages 123-155, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Goldbaum, David, 2021. "The origins of influence," Economic Modelling, Elsevier, vol. 97(C), pages 380-396.
    2. Wang, Guocheng & Wang, Yanyi, 2018. "Herding, social network and volatility," Economic Modelling, Elsevier, vol. 68(C), pages 74-81.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Selima Ben Mansour & Elyès Jouini & Jean-Michel Marin & Clotilde Napp & Christian Robert, 2008. "Are risk-averse agents more optimistic? A Bayesian estimation approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(6), pages 843-860.
    2. repec:dau:papers:123456789/2324 is not listed on IDEAS
    3. Xue-Zhong He & Lei Shi, 2010. "Differences in Opinion and Risk Premium," Research Paper Series 271, Quantitative Finance Research Centre, University of Technology, Sydney.
    4. Li, Jinfang, 2014. "Multi-period sentiment asset pricing model with information," International Review of Economics & Finance, Elsevier, vol. 34(C), pages 118-130.
    5. Xue-Zhong He & Lei Shi, 2016. "A Binomial Model of Asset and Option Pricing with Heterogeneous Beliefs," Published Paper Series 2016-4, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    6. Rehman, Mobeen Ur & Sensoy, Ahmet & Eraslan, Veysel & Shahzad, Syed Jawad Hussain & Vo, Xuan Vinh, 2021. "Sensitivity of US equity returns to economic policy uncertainty and investor sentiments," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    7. Xue-Zhong He & Lei Shi & Min Zheng, 2012. "Asset Pricing Under Keeping Up With the Joneses and Heterogeneous Beliefs," Research Paper Series 302, Quantitative Finance Research Centre, University of Technology, Sydney.
    8. Yang, Chunpeng & Zhou, Liyun, 2015. "Sentiment approach to underestimation and overestimation pricing model," Economic Modelling, Elsevier, vol. 51(C), pages 280-288.
    9. Yang, Chunpeng & Li, Jinfang, 2014. "Two-period trading sentiment asset pricing model with information," Economic Modelling, Elsevier, vol. 36(C), pages 1-7.
    10. Li, Jinfang, 2019. "Sentiment trading, informed trading and dynamic asset pricing," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 210-222.
    11. Giulio Bottazzi & Pietro Dindo & Daniele Giachini, 2019. "Momentum and reversal in financial markets with persistent heterogeneity," Annals of Finance, Springer, vol. 15(4), pages 455-487, December.
    12. Zhou, Liyun & Yang, Chunpeng, 2019. "Stochastic investor sentiment, crowdedness and deviation of asset prices from fundamentals," Economic Modelling, Elsevier, vol. 79(C), pages 130-140.
    13. Li, Jinfang, 2022. "The sentiment pricing dynamics with short-term and long-term learning," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).
    14. Hongjun Yan, 2010. "Is Noise Trading Cancelled Out by Aggregation?," Management Science, INFORMS, vol. 56(7), pages 1047-1059, July.
    15. Lei Shi, 2010. "Portfolio Analysis and Equilibrium Asset Pricing with Heterogeneous Beliefs," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 9, July-Dece.
    16. Dindo, Pietro, 2019. "Survival in speculative markets," Journal of Economic Theory, Elsevier, vol. 181(C), pages 1-43.
    17. He, Xue-Zhong & Shi, Lei, 2017. "Index portfolio and welfare analysis under heterogeneous beliefs," Journal of Banking & Finance, Elsevier, vol. 75(C), pages 64-79.
    18. Lei Shi, 2010. "Portfolio Analysis and Equilibrium Asset Pricing with Heterogeneous Beliefs," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 2-2010, January-A.
    19. Andrea Buraschi & Paul Whelan, 2022. "Speculation, Sentiment, and Interest Rates," Management Science, INFORMS, vol. 68(3), pages 2308-2329, March.
    20. Zghal, Imen & Ben Hamad, Salah & Eleuch, Hichem & Nobanee, Haitham, 2020. "The effect of market sentiment and information asymmetry on option pricing," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    21. Gao, Bin & Xie, Jun & Jia, Yun, 2019. "A futures pricing model with long-term and short-term traders," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 9-28.

    More about this item

    Keywords

    Heterogeneous beliefs; Belief manipulation; Gurus; Optimism; Pessimism; Equity premium puzzle;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:49:y:2015:i:c:p:11-18. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.