Description:
We investigate the market-compatible degree of agent heterogeneity by identifying and analyzing the full range of conditional beliefs consistent with observed asset prices and good-deal bounds. Our methodology neither makes assumptions on underlying processes nor does it use survey data. It can be used in any arbitrage-free market. We apply it to S&P500 and VIX derivatives, both jointly and separately. Recovered dispersion of beliefs crucially depends on the degree of market incompleteness and maximally allowed Sharpe ratios; it is related to trading activity and measures of risk in financial markets, as well as professional macroeconomic survey dispersion