Abstract
This paper incorporates dynamic disagreement endogenously and tractably into the modern macro-finance framework. Heterogenous rates of learning from aggregate processes are introduced to micro-found the presence of disagreement. The appearance of disagreement dynamics amplifies the risk and instability in the economic system with financial frictions, giving rise to excess return volatility and risk premium. Additionally, the model characterizes boom-bust cycles and state-dependent return predictability. I also discuss macro-prudential policies to restore stability and efficiency in this type of economic environment.