I study the stationary wealth distribution in a dynamic model of financial markets in which investors differ in their levels of investment sophistication. Some investors form beliefs rationally but have access to different information, while others hold incorrect beliefs. For all investor types, the stationary wealth distribution exhibits a thick upper tail, whose thickness depends on the higher moments of portfolio returns relative to the...

Behavioral biases in investors' expectations can lead to a decoupling of asset prices from fundamentals, and risks to financial stability. Central bank communication could be a tool to mitigate these issues, but there is no theoretical guidance on how and when  to communicate  when some investors do not form expectations rationally. We develop a communication model that flexibly accounts for such deviations from rationality and...

We present a model of competition between ESG raters who acquire information about multiple unrelated categories and sell ratings. Raters specializing in different categories maximizes the amount of information transmitted and surplus, and can be the equilibrium outcome. When investors place a high value on ESG performance across multiple categories, the unique equilibrium is for the raters to generalize — splitting their effort among the categories, resulting in less informative ratings. Greenwashing...