Explaining Asset Mispricing Using the Resale Option and Inflation Illusion

摘要

We investigate the overconfidence theory and inflation-illusion hypothesis of asset mispricing. Both concepts address subjective asset valuation but place the impetus on differing explanations within the standard dividend-growth model. We find that one of the theoretical outcomes of overconfidence-asset turnover-consistently explains mispricing in U.S. housing markets. Further, we find that asset turnover subsumes expected inflation in certain specifications, suggesting that dispersion in investors' beliefs is a better explanation of asset mispricing than the investors' inability to properly discount future cash flows.