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The wisdom of the crowd applied to financial markets asserts that prices represent a consensus belief that is more accurate than individual beliefs. However, a market selection argument implies that prices eventually reflect only the beliefs of the most accurate agent. In this paper, we show how...
Persistent link: https://www.econbiz.de/10013189055
In a general equilibrium model with a continuum of traders and bounded aggregate endowment, I investigate the Market Selection Hypothesis that markets favor traders with accurate beliefs. Contrary to known results for economies with (only) finitely many traders, I find that risk attitudes affect...
Persistent link: https://www.econbiz.de/10012215295
I model an incomplete markets economy where unaware agents do not perceive all states of nature, so unintended default can occur when asset returns differ from what was perceived. The presence of default plays a crucial role in the proof of existence - particularly in economies where beliefs are...
Persistent link: https://www.econbiz.de/10014537040
We use supervised machine learning to approximate the expectations typically contained in the optimality conditions of an economic model in the spirit of the parameterized expectations algorithm (PEA) with stochastic simulation. When the set of state variables is generated by a stochastic...
Persistent link: https://www.econbiz.de/10014536897
We provide a production-based asset pricing model with dispersed information and small deviations from full rational expectations. In the model, aggregate output and equity prices depend on the higher-order beliefs about aggregate demand and individual stochastic discount factors. We prove that...
Persistent link: https://www.econbiz.de/10013189051
If agents are ambiguity-averse and can invest in productive assets, asset prices can robustly exhibit indeterminacy in the markets that open after the productive investment has been launched. For indeterminacy to occur, the aggregate supply of goods must appear in precise configurations but the...
Persistent link: https://www.econbiz.de/10011599497
This paper examines the two-fund separation paradigm in the context of an infinite-horizon general equilibrium model with dynamically complete markets and heterogeneous consumers with time- and state-separable utility functions. With the exception of the dynamic structure, we maintain the...
Persistent link: https://www.econbiz.de/10011599385
The recent increase in passive investment products has provided investors with easy access to international markets. The basic motivation of this paper is to offer new tools to investors who want to allocate assets across countries. This study investigates the performance of equity country...
Persistent link: https://www.econbiz.de/10011659908
This study develops an agent-based computational stock market model in which each trader's buying and selling decisions are endogenously determined by multiple factors: namely, firm profitability, past stock price movement, and imitation of other traders. Each trader can switch from being a...
Persistent link: https://www.econbiz.de/10011988815
Purpose – The aim of this paper is to examine the role of liquidity in asset pricing in a tiny market, such as the Portuguese. The unique setting of the Lisbon Stock Exchange with regards to changes in classification from an emerging to a developed stock market, allows an original answer to...
Persistent link: https://www.econbiz.de/10011859404