A copy of this work was available on the public web and has been preserved in the Wayback Machine. The capture dates from 2004; you can also visit the original URL.
The file type is
This paper studies an overlapping generations model with multiple securities and heterogeneously informed agents. There are two types of multiplicity of equilibria, one due to noisy rational expectations and the other resulting from self-fulfilling prophecies. Under general conditions, there exists an equilibrium in which stock returns are highly volatile and strongly correlated, even if all underlying shocks are small and independent. Other equilibria include a highly volatile, weaklydoi:10.2139/ssrn.302066 fatcat:cfjcu7rihrfp7f3u4nuw7tgyle