INFORMATION EXCHANGE IN SECURITY MARKETS AND THE ASSUMPTION OF "HOMOGENEOUS BELIEFS".

The article focuses on information exchange in security markets and the assumption of homogenous beliefs in the theory of finance. The theories of optimal capital budgeting and security valuation are founded on the assumption that shareholders and managers can communicate perfectly with one another across capital markets. The author focuses his research on the assumption that expectations are uniform on both sides of capital markets. Several reliable models drawn from finance-communication theory are discussed.