Can Gao - University of St. Gallen

Abstract

We study a general-equilibrium economy where a continuum of agents trade stocks and derivatives under heterogeneous beliefs along two dimensions: news intensity and content. When intensity disagreement dominates, implied volatility appears persistent—quiet periods shift wealth toward calm-world believers, compressing risk-neutral tail probabilities and raising prices. When content disagreement dominates, volatility appears mean-reverting—news shift wealth between optimists and pessimists. The information structure of news process matters for the persistence of intensity disagreement: in a Poisson limit, intensity disagreement survives but is eliminated in a Brownian limit. The framework endogenizes implied volatility smirk and U-shaped cross-section of derivative positions across subjective return beliefs.

Additional information:

• Speaker: Can Gao 
• Time: Wednesday, 03.06.2026, 14:45 - 16:00
• Location: Faculty Lounge, Room 0.036
• Further links:
  • Can Gao's webpage
• Organizer: Finance Group
• Contact:
  • Almut Lunkenheimer
  • +49 228 73-9228
  • ifs@uni-bonn.de