UCL Department of Economics


Sentiment and Speculation in a Market with Heterogeneous Beliefs: Ian Martin (LSE)

17 March 2021, 2:00 pm–3:15 pm

ucl quad and wilkins building

The Finance Seminar, jointly with School of Management will host Ian Martin from the London School of Economics and Political Science (LSE).

Event Information

Open to



Britta Augsburg

Abstract: We present a model featuring risk-averse investors with heterogeneous beliefs. Individuals who are correct in hindsight, whether through luck or judgment, become relatively wealthy. As a result, market sentiment is bullish following good news and bearish following bad news. Sentiment drives up volatility, and hence also risk premia. In a continuous-time Brownian limit, moderate investors trade against market sentiment in the hope of capturing a variance risk premium created by the presence of extremists. In a Poisson limit that features sudden arrivals of information, CDS rates spike following bad news and decline during quiet times.

Please contact Britta Augsberg britta_a@ifs.org.uk for the seminar link and password.