Advanced Macroeconomics I ECON 525a - Fall 2009 Yale University
|
|
- Lesley Johns
- 6 years ago
- Views:
Transcription
1 Advanced Macroeconomics I ECON 525a - Fall 2009 Yale University Week 5 - Bubbles
2 Introduction Why a rational representative investor model of asset prices does not generate bubbles? Martingale property: LIE (Law of iterated expectations).
3 Introduction Why a rational representative investor model of asset prices does not generate bubbles? Martingale property: LIE (Law of iterated expectations). This is not the case with heterogeneity, since in general, average expectations fail to satisfy LIE. When private information is heterogeneous, agents rely excessively in public signals. Hence Mean price path deviates from consensus liquidation values Prices exhibit inertia.
4 Fail of LIE with heterogeneous information LIE with private information E it (E i,t+1 (θ)) = E it (θ) LIE with public information E t ( E t+1 (θ) ) = E t (θ) LIE fail in averages with asymmetric information E t ( E t+1 (θ) ) E t (θ)
5 Basics Information at all dates: θ N (y, 1 ) α Signals: x i = θ + ɛ i, where ɛ i N (0, 1 ) β Average expectation of average expectations. ( E T t t (θ) E t ( E t+1 (...E T 1 (θ) )) = See that E T t t (θ) E t (θ) = 1 ( ) ) T t ( ) T t β β y+ θ α + β α + β ( ( )) ( ) β β 1 y + θ α + β α + β
6 No learning through prices If then p t = ( 1 p t = E t (p t+1 ) ( ) ) T t ( ) T t β β y + θ α + β α + β How to obtain the equation for p t? How to deal with learning from past prices?
7 Model Single risky asset, liquidated at T + 1 but traded from 1 to T. Liquidation value θ is determined before date 1. θ N (y, 1 α ) Overlapping generation of no wealth constrained traders, each living for two periods and consuming in the second period. u(c) = e c τ Information set: {y, p 1, p 2,.., p t, x it } where x it = θ + ɛ it and ɛ it N (0, 1 β ) Each period exogenous net supply of assets s t N (0, 1 γ )
8 Path of fundamental value Beauty Contests and Iterated Expectations Figure 1 Path of fundamental value
9 result of noise traders or in terms of the subjective uncertainty facing traders on the free float of the asset that is genuinely available for sale [see Easley and O Hara (2001), footnote 9, page 52]. One potentially unsatisfactory feature of our setup is the feature that random net supplies are independent draws over time. When there are overlapping generations of traders, such an assumption is Allen, Morris and Shin, JFS 06 Abreu and Brunnermeier, Ecta 03 Private Information Figure 2 Private information
10 Price at date T Trader i s demand at date T D it = Market clearing is given by D T = Then, the price at date T is τ V it (θ) (E it (θ) p T ) τ ( ) E T (θ) p T = st V T (θ) p T = E T (θ) V T (θ) s T τ
11 Price at date t The asset price at date T 1 is p T 1 = E T 1 (p T ) V T 1(p T ) τ The asset price at a general date t is s T 1 = E T 1 E T (θ) V T 1(p T ) s T 1 τ p t = E t E t+1...e T (θ) V t(p t+1 ) s t τ
12 Proposition 1. For all t < T Allen, Morris and Shin, JFS 06 Abreu and Brunnermeier, Ecta 03 Main results E s ðjp t jþ > E s E t ðþ It is only at the final trading date, T, that we have E s ðp T Þ¼E s E T ðþ. Figure 3 Mean of time paths of p t and E t ðqþ
13 Main results Prices deviate systematically from the average expectation of the fundamental value of the asset. Inertia of prices. Intuition: Excessive weight assigned to the public signal y and previous prices.
14 Main results For risk neutral traders or infinitely precise signals, prices are fully revealing of the fundamental value. This is p t E t (θ) θ. As investors become very risk averse (τ 0), they are less aggressive and prices are less informative. This is p t q t
15 Main ideas Rational arbitrageurs may know the price of an asset exceeds the fundamental and still decide not to sell. The key is they do not know when the bubble will burst, where it is required a critical mass of speculators to do it. Main elements for this to work: Dispersion of opinions among arbitrageurs. Need for coordination.
Macroeconomics of Financial Markets
ECON 712, Fall 2017 Bubbles Guillermo Ordoñez University of Pennsylvania and NBER September 30, 2017 Beauty Contests Professional investment may be likened to those newspaper competitions in which the
More informationDynamic Trading and Asset Prices: Keynes vs. Hayek
Dynamic Trading and Asset Prices: Keynes vs. Hayek Giovanni Cespa 1 and Xavier Vives 2 1 CSEF, Università di Salerno, and CEPR 2 IESE Business School C6, Capri June 27, 2007 Introduction Motivation (I)
More informationAmbiguous Information and Trading Volume in stock market
Ambiguous Information and Trading Volume in stock market Meng-Wei Chen Department of Economics, Indiana University at Bloomington April 21, 2011 Abstract This paper studies the information transmission
More informationBubbles and Crashes. Jonathan Levin. October 2003
Bubbles and Crashes Jonathan Levin October 2003 These notes consider Abreu and Brunnermeier s (2003) paper on the failure of rational arbitrage in asset markets. Recall that the no-trade theorem states
More informationCrises and Prices: Information Aggregation, Multiplicity and Volatility
: Information Aggregation, Multiplicity and Volatility Reading Group UC3M G.M. Angeletos and I. Werning November 09 Motivation Modelling Crises I There is a wide literature analyzing crises (currency attacks,
More informationSignal or noise? Uncertainty and learning whether other traders are informed
Signal or noise? Uncertainty and learning whether other traders are informed Snehal Banerjee (Northwestern) Brett Green (UC-Berkeley) AFA 2014 Meetings July 2013 Learning about other traders Trade motives
More informationPrinceton University TexPoint fonts used in EMF. Read the TexPoint manual before you delete this box.: AAAAAA
Princeton University crisis management preventive Systemic risk a broad definition Systemic risk build-up during (credit) bubble and materializes in a crisis Volatility Paradox contemp. measures inappropriate
More informationBubbles. Macroeconomics IV. Ricardo J. Caballero. Spring 2011 MIT. R.J. Caballero (MIT) Bubbles Spring / 29
Bubbles Macroeconomics IV Ricardo J. Caballero MIT Spring 2011 R.J. Caballero (MIT) Bubbles Spring 2011 1 / 29 References 1 2 3 Allen, F. and D. Gale, Bubbles and Crises, Economic Journal, 110:236-255,
More informationEFFICIENT MARKETS HYPOTHESIS
EFFICIENT MARKETS HYPOTHESIS when economists speak of capital markets as being efficient, they usually consider asset prices and returns as being determined as the outcome of supply and demand in a competitive
More informationNoisy Rational Bubbles
Noisy Rational Bubbles Qiusha Peng November 13, 2016 Abstract This paper develops a theory of asset price dynamics during bubble-like market episodes. In the model, noise trading breaks the winner s curse
More informationA Theory of Asset Prices based on Heterogeneous Information and Limits to Arbitrage
A Theory of Asset Prices based on Heterogeneous Information and Limits to Arbitrage Elias Albagli USC Marhsall Christian Hellwig Toulouse School of Economics Aleh Tsyvinski Yale University September 20,
More informationAsymmetric Information: Walrasian Equilibria, and Rational Expectations Equilibria
Asymmetric Information: Walrasian Equilibria and Rational Expectations Equilibria 1 Basic Setup Two periods: 0 and 1 One riskless asset with interest rate r One risky asset which pays a normally distributed
More informationThe effects of public information with asymmetrically informed. short-horizon investors
The effects of public information with asymmetrically informed short-horizon investors Qi Chen Zeqiong Huang Yun Zhang This draft: November 203 Chen qc2@duke.edu) and Huang zh2@duke.edu) are from the Fuqua
More informationSpeculative Bubble Burst
*University of Paris1 - Panthéon Sorbonne Hyejin.Cho@malix.univ-paris1.fr Thu, 16/07/2015 Undefined Financial Object (UFO) in in financial crisis A fundamental dichotomy a partition of a whole into two
More informationAdvanced Macroeconomics I ECON 525a, Fall 2009 Yale University. Syllabus
Advanced Macroeconomics I ECON 525a, Fall 2009 Yale University Guillermo Ordonez guillermo.ordonez@yale.edu Syllabus Course Description This course offers a discussion about the importance and fragility
More informationTOPICS IN MACROECONOMICS: MODELLING INFORMATION, LEARNING AND EXPECTATIONS. Private and public information
TOPICS IN MACROECONOMICS: MODELLING INFORMATION, LEARNING AND EXPECTATIONS KRISTOFFER P. NIMARK Private and public information Most economic models involve some type of interaction between multiple agents
More informationBubbles and Crashes. Hedge Funds and the Technology Bubble
1 Bubbles and Crashes Dilip Abreu Princeton University Markus K. Brunnermeier Princeton University Hedge Funds and the Technology Bubble Markus K. Brunnermeier Princeton University Stefan Nagel London
More informationPrice Impact, Funding Shock and Stock Ownership Structure
Price Impact, Funding Shock and Stock Ownership Structure Yosuke Kimura Graduate School of Economics, The University of Tokyo March 20, 2017 Abstract This paper considers the relationship between stock
More informationHeterogeneous Beliefs in Finance: Discussion of "Momentum as an Outcome of Dierences in Higher Order Beliefs" by Banerjee, Kaniel and Kremer
: Discussion of "Momentum as an Outcome of Dierences in Higher Order Beliefs" by Banerjee, Kaniel and Kremer Economics Department and Bendheim Center for Finance Princeton University AFA Winter Meetings
More informationEssays on Macroeconomics and Finance
University of Pennsylvania ScholarlyCommons Publicly Accessible Penn Dissertations 1-1-2015 Essays on Macroeconomics and Finance Qiusha Peng University of Pennsylvania, pengqiusha2010@gmail.com Follow
More informationGeneral Examination in Macroeconomic Theory SPRING 2016
HARVARD UNIVERSITY DEPARTMENT OF ECONOMICS General Examination in Macroeconomic Theory SPRING 2016 You have FOUR hours. Answer all questions Part A (Prof. Laibson): 60 minutes Part B (Prof. Barro): 60
More informationPrice Drift as an Outcome of Differences in Higher-Order Beliefs
Price Drift as an Outcome of Differences in Higher-Order Beliefs Snehal Banerjee Kellogg School of Management, Northwestern University Ron Kaniel Fuqua School of Business, Duke University Ilan Kremer Graduate
More informationSpeculative Betas. Harrison Hong and David Sraer Princeton University. September 30, 2012
Speculative Betas Harrison Hong and David Sraer Princeton University September 30, 2012 Introduction Model 1 factor static Shorting OLG Exenstion Calibration High Risk, Low Return Puzzle Cumulative Returns
More informationLiquidity and Asset Prices in Rational Expectations Equilibrium with Ambiguous Information
Liquidity and Asset Prices in Rational Expectations Equilibrium with Ambiguous Information Han Ozsoylev SBS, University of Oxford Jan Werner University of Minnesota September 006, revised March 007 Abstract:
More informationAsset Pricing under Asymmetric Information Rational Expectations Equilibrium
Asset Pricing under Asymmetric s Equilibrium Markus K. Brunnermeier Princeton University November 16, 2015 A of Market Microstructure Models simultaneous submission of demand schedules competitive rational
More informationKeynesian Beauty Contest, Accounting Disclosure, and Market. Efficiency
Keynesian Beauty Contest, Accounting Disclosure, and Market Efficiency Pingyang Gao Yale School of Management (Forthcoming in The Journal of Accounting Research) Abstract This paper examines the market
More informationInternet bubble? s
1 Internet bubble? - 1990 s NASDAQ Combined Composite Index NEMAX All Share Index (German Neuer Markt) Chart (Jan. 98 - Dec. 00) 38 day average Loss of ca. 60 % from high of $ 5,132 Chart (Jan. 98 - Dec.
More informationSocial Learning in Financial Markets. Pablo D. Azar
Social Learning in Financial Markets Pablo D. Azar Motivation Many financial crises are driven by a deviation between prices and fundamental values: Buying booms followed by panicked selloffs. CNBC effect
More informationLabor Economics Field Exam Spring 2011
Labor Economics Field Exam Spring 2011 Instructions You have 4 hours to complete this exam. This is a closed book examination. No written materials are allowed. You can use a calculator. THE EXAM IS COMPOSED
More informationA Market Microsructure Theory of the Term Structure of Asset Returns
A Market Microsructure Theory of the Term Structure of Asset Returns Albert S. Kyle Anna A. Obizhaeva Yajun Wang University of Maryland New Economic School University of Maryland USA Russia USA SWUFE,
More informationMarket Efficiency. Pingyang Gao. Yale School of Management. August, 2007
Keynesian Beauty Contest, Accounting Disclosure, and Market Efficiency Pingyang Gao Yale School of Management August, 2007 I am grateful to seminar participants at Yale University, the 2007 AAA northeast
More informationINTERTEMPORAL ASSET ALLOCATION: THEORY
INTERTEMPORAL ASSET ALLOCATION: THEORY Multi-Period Model The agent acts as a price-taker in asset markets and then chooses today s consumption and asset shares to maximise lifetime utility. This multi-period
More information1 Asset Pricing: Replicating portfolios
Alberto Bisin Corporate Finance: Lecture Notes Class 1: Valuation updated November 17th, 2002 1 Asset Pricing: Replicating portfolios Consider an economy with two states of nature {s 1, s 2 } and with
More informationConsumption and Portfolio Decisions When Expected Returns A
Consumption and Portfolio Decisions When Expected Returns Are Time Varying September 10, 2007 Introduction In the recent literature of empirical asset pricing there has been considerable evidence of time-varying
More informationMaking Money out of Publicly Available Information
Making Money out of Publicly Available Information Forthcoming, Economics Letters Alan D. Morrison Saïd Business School, University of Oxford and CEPR Nir Vulkan Saïd Business School, University of Oxford
More information1. Information, Equilibrium, and Efficiency Concepts 2. No-Trade Theorems, Competitive Asset Pricing, Bubbles
CONTENTS List of figures ix Preface xi 1. Information, Equilibrium, and Efficiency Concepts 1 1.1. Modeling Information 2 1.2. Rational Expectations Equilibrium and Bayesian Nash Equilibrium 14 1.2.1.
More informationA Three-State Rational Greater-Fool Bubble With. Intertemporal Consumption Smoothing
A Three-State Rational Greater-Fool Bubble With Intertemporal Consumption Smoothing Feng Liu a and Joseph S.S. White b a Department of Economics and Decision Sciences, Western Illinois University, United
More informationAppendix to: AMoreElaborateModel
Appendix to: Why Do Demand Curves for Stocks Slope Down? AMoreElaborateModel Antti Petajisto Yale School of Management February 2004 1 A More Elaborate Model 1.1 Motivation Our earlier model provides a
More informationM. R. Grasselli. ORFE - Princeton University, April 4, 2011
the the Sharcnet Chair in Financial Mathematics Mathematics and Statistics - McMaster University Joint work with O. Ismail and B. Costa Lima ORFE - Princeton University, April 4, 2011 Outline the 1 Dynamic
More informationLiquidity and Valuation in an Uncertain Market with Multiple Risky Assets and Difference of Opinions
Liquidity and Valuation in an Uncertain Market with Multiple Risky Assets and Difference of Opinions Qi Nan Zhai FDG School of Finance and Economics, UTS Business School University of Technology, Sydney
More informationInformation Aggregation in Dynamic Markets with Strategic Traders. Michael Ostrovsky
Information Aggregation in Dynamic Markets with Strategic Traders Michael Ostrovsky Setup n risk-neutral players, i = 1,..., n Finite set of states of the world Ω Random variable ( security ) X : Ω R Each
More informationInformation Disclosure and Real Investment in a Dynamic Setting
Information Disclosure and Real Investment in a Dynamic Setting Sunil Dutta Haas School of Business University of California, Berkeley dutta@haas.berkeley.edu and Alexander Nezlobin Haas School of Business
More informationStrategic Traders and Liquidity Crashes
Strategic Traders and Liquidity Crashes Alexander Remorov 6.254 Final Project December 7, 2013 Remorov Strategic Traders and Liquidity Crashes 1 / 21 Introduction Most of the time markets functioning well
More informationMarket Liquidity and Performance Monitoring The main idea The sequence of events: Technology and information
Market Liquidity and Performance Monitoring Holmstrom and Tirole (JPE, 1993) The main idea A firm would like to issue shares in the capital market because once these shares are publicly traded, speculators
More informationFinancial Economics Field Exam August 2011
Financial Economics Field Exam August 2011 There are two questions on the exam, representing Macroeconomic Finance (234A) and Corporate Finance (234C). Please answer both questions to the best of your
More informationKeynesian Beauty Contest, Accounting Disclosure, and Market Efficiency
DOI: 0./j.475-679X.2008.00295.x Journal of Accounting Research Vol. 46 No. 4 September 2008 Printed in U.S.A. Keynesian Beauty Contest, Accounting Disclosure, and Market Efficiency PINGYANG GAO Received
More informationHigher Order Expectations in Asset Pricing 1
Higher Order Expectations in Asset Pricing Philippe Bacchetta 2 University of Lausanne Swiss Finance Institute and CEPR Eric van Wincoop 3 University of Virginia NBER January 30, 2008 We are grateful to
More informationM. R. Grasselli. Imperial College London, March 09, Mathematics and Statistics - McMaster University Joint work with O. Ismail and B.
the the Mathematics and Statistics - McMaster University Joint work with O. Ismail and B. Costa Lima Imperial College London, March 09, 2011 Outline the 1 Dynamic General Equilibrium ian views 2 Rational
More informationMan vs. Machine: Quantitative and Discretionary Equity Management
Man vs. Machine: Quantitative and Discretionary Equity Management Simona Abis Columbia University Quantitative Investment On the rise in recent decades The future of investment management? Potentially
More informationIndexing and Price Informativeness
Indexing and Price Informativeness Hong Liu Washington University in St. Louis Yajun Wang University of Maryland IFS SWUFE August 3, 2017 Liu and Wang Indexing and Price Informativeness 1/25 Motivation
More informationDispersed Information, Monetary Policy and Central Bank Communication
Dispersed Information, Monetary Policy and Central Bank Communication George-Marios Angeletos MIT Central Bank Research Network Conference December 13-14, 2007 MOTIVATION The peculiar character of the
More informationWhere do securities come from
Where do securities come from We view it as natural to trade common stocks WHY? Coase s policemen Pricing Assumptions on market trading? Predictions? Partial Equilibrium or GE economies (risk spanning)
More informationTechnical Analysis, Liquidity Provision, and Return Predictability
Technical Analysis, Liquidity Provision, and Return Predictability April 9, 011 Abstract We develop a strategic trading model to study the liquidity provision role of technical analysis. The equilibrium
More informationAn Introduction to Market Microstructure Invariance
An Introduction to Market Microstructure Invariance Albert S. Kyle University of Maryland Anna A. Obizhaeva New Economic School HSE, Moscow November 8, 2014 Pete Kyle and Anna Obizhaeva Market Microstructure
More informationBasics of Asset Pricing. Ali Nejadmalayeri
Basics of Asset Pricing Ali Nejadmalayeri January 2009 No-Arbitrage and Equilibrium Pricing in Complete Markets: Imagine a finite state space with s {1,..., S} where there exist n traded assets with a
More informationSpeculative Trade under Ambiguity
Speculative Trade under Ambiguity Jan Werner November 2014, revised March 2017 Abstract: Ambiguous beliefs may lead to speculative trade and speculative bubbles. We demonstrate this by showing that the
More informationLiquidity and Asset Returns Under Asymmetric Information and Imperfect Competition
Liquidity and Asset Returns Under Asymmetric Information and Imperfect Competition The MIT Faculty has made this article openly available. Please share how this access benefits you. Your story matters.
More informationPrinceton University
Princeton University crisis management preventive Systemic risk a broad definition Systemic risk build-up during (credit) bubble and materializes in a crisis Volatility Paradox contemp. measures inappropriate
More informationStrategic Trading of Informed Trader with Monopoly on Shortand Long-Lived Information
ANNALS OF ECONOMICS AND FINANCE 10-, 351 365 (009) Strategic Trading of Informed Trader with Monopoly on Shortand Long-Lived Information Chanwoo Noh Department of Mathematics, Pohang University of Science
More informationSelf-Fulfilling Credit Market Freezes
Working Draft, June 2009 Self-Fulfilling Credit Market Freezes Lucian Bebchuk and Itay Goldstein This paper develops a model of a self-fulfilling credit market freeze and uses it to study alternative governmental
More informationChina's Model of Managing the Financial System
JRCPPF Escalating Risks China's Model of Managing the Financial System Markus K. Brunnermeier Michael Sockin Wei Xiong Discussion by Lin William Cong University of Chicago Booth School of Business Feb,
More informationInvestment Horizons and Asset Prices under Asymmetric Information
Investment Horizons and Asset Prices under Asymmetric Information Elias Albagli December 4, 2012 Abstract I construct a generalized OLG economy where investors live for an arbitrary number of periods,
More informationTAKE-HOME EXAM POINTS)
ECO 521 Fall 216 TAKE-HOME EXAM The exam is due at 9AM Thursday, January 19, preferably by electronic submission to both sims@princeton.edu and moll@princeton.edu. Paper submissions are allowed, and should
More informationHigher Order Expectations in Asset Pricing 1
Higher Order Expectations in Asset Pricing Philippe Bacchetta 2 Study Center Gerzensee University of Lausanne Swiss Finance Institute and CEPR Eric van Wincoop 3 University of Virginia NBER October 7,
More informationSTATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics. Ph. D. Comprehensive Examination: Macroeconomics Spring, 2016
STATE UNIVERSITY OF NEW YORK AT ALBANY Department of Economics Ph. D. Comprehensive Examination: Macroeconomics Spring, 2016 Section 1. Suggested Time: 45 Minutes) For 3 of the following 6 statements,
More informationFE570 Financial Markets and Trading. Stevens Institute of Technology
FE570 Financial Markets and Trading Lecture 6. Volatility Models and (Ref. Joel Hasbrouck - Empirical Market Microstructure ) Steve Yang Stevens Institute of Technology 10/02/2012 Outline 1 Volatility
More informationMacroeconomics Qualifying Examination
Macroeconomics Qualifying Examination January 211 Department of Economics UNC Chapel Hill Instructions: This examination consists of three questions. Answer all questions. Answering only two questions
More informationQuantitative Modelling of Market Booms and Crashes
Quantitative Modelling of Market Booms and Crashes Ilya Sheynzon (LSE) Workhop on Mathematics of Financial Risk Management Isaac Newton Institute for Mathematical Sciences March 28, 2013 October. This
More informationWhy Do Agency Theorists Misinterpret Market Monitoring?
Why Do Agency Theorists Misinterpret Market Monitoring? Peter L. Swan ACE Conference, July 13, 2018, Canberra UNSW Business School, Sydney Australia July 13, 2018 UNSW Australia, Sydney, Australia 1 /
More informationChapter One NOISY RATIONAL EXPECTATIONS WITH STOCHASTIC FUNDAMENTALS
9 Chapter One NOISY RATIONAL EXPECTATIONS WITH STOCHASTIC FUNDAMENTALS 0 Introduction Models of trading behavior often use the assumption of rational expectations to describe how traders form beliefs about
More informationDynamic Asset Pricing Models: Recent Developments
Dynamic Asset Pricing Models: Recent Developments Day 1: Asset Pricing Puzzles and Learning Pietro Veronesi Graduate School of Business, University of Chicago CEPR, NBER Bank of Italy: June 2006 Pietro
More informationInformation and Learning in Markets. Chapter 9
Market Microstructure Competitive Rational Expectations Equilibria Informed Traders move First Hedgers and Producers Summary Appendix Information and Learning in Markets by Xavier Vives, Princeton University
More informationSpeculative Trade under Ambiguity
Speculative Trade under Ambiguity Jan Werner March 2014. Abstract: Ambiguous beliefs may lead to speculative trade and speculative bubbles. We demonstrate this by showing that the classical Harrison and
More informationTopic 4. Introducing investment (and saving) decisions
14.452. Topic 4. Introducing investment (and saving) decisions Olivier Blanchard April 27 Nr. 1 1. Motivation In the benchmark model (and the RBC extension), there was a clear consump tion/saving decision.
More informationImperfect Competition, Information Asymmetry, and Cost of Capital
Imperfect Competition, Information Asymmetry, and Cost of Capital Judson Caskey, UT Austin John Hughes, UCLA Jun Liu, UCSD Institute of Financial Studies Southwestern University of Economics and Finance
More informationSelf-Fulfilling Credit Market Freezes
Last revised: May 2010 Self-Fulfilling Credit Market Freezes Lucian A. Bebchuk and Itay Goldstein Abstract This paper develops a model of a self-fulfilling credit market freeze and uses it to study alternative
More informationTOPICS IN MACROECONOMICS: MODELLING INFORMATION, LEARNING AND EXPECTATIONS LECTURE NOTES. Lucas Island Model
TOPICS IN MACROECONOMICS: MODELLING INFORMATION, LEARNING AND EXPECTATIONS LECTURE NOTES KRISTOFFER P. NIMARK Lucas Island Model The Lucas Island model appeared in a series of papers in the early 970s
More informationA Model of Rational Speculative Trade
A Model of Rational Speculative Trade Dmitry Lubensky 1 Doug Smith 2 1 Kelley School of Business Indiana University 2 Federal Trade Commission January 21, 2014 Speculative Trade Example: suckers in poker;
More informationNBER WORKING PAPER SERIES LIQUIDITY AND ASSET PRICES: A UNIFIED FRAMEWORK. Dimitri Vayanos Jiang Wang
NBER WORKING PAPER SERIES LIQUIDITY AND ASSET PRICES: A UNIFIED FRAMEWORK Dimitri Vayanos Jiang Wang Working Paper 15215 http://www.nber.org/papers/w15215 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts
More informationA ROBUST MODEL OF BUBBLES WITH MULTIDIMENSIONAL UNCERTAINTY. ANTONIO DOBLAS-MADRID Michigan State University, East Lansing, MI 48824, U.S.A.
http://www.econometricsociety.org/ Econometrica, Vol. 80, No. 5 (September, 2012), 1845 1893 A ROBUST MODEL OF BUBBLES WITH MULTIDIMENSIONAL UNCERTAINTY ANTONIO DOBLAS-MADRID Michigan State University,
More informationGovernment Safety Net, Stock Market Participation and Asset Prices
Government Safety Net, Stock Market Participation and Asset Prices Danilo Lopomo Beteto November 18, 2011 Introduction Goal: study of the effects on prices of government intervention during crises Question:
More informationCredit Crises, Precautionary Savings and the Liquidity Trap October (R&R Quarterly 31, 2016Journal 1 / of19
Credit Crises, Precautionary Savings and the Liquidity Trap (R&R Quarterly Journal of nomics) October 31, 2016 Credit Crises, Precautionary Savings and the Liquidity Trap October (R&R Quarterly 31, 2016Journal
More informationOptimal margins and equilibrium prices
Optimal margins and equilibrium prices Bruno Biais Florian Heider Marie Hoerova Toulouse School of Economics ECB ECB Bocconi Consob Conference Securities Markets: Trends, Risks and Policies February 26,
More informationInstitutional Finance Financial Crises, Risk Management and Liquidity
Institutional Finance Financial Crises, Risk Management and Liquidity Markus K. Brunnermeier Preceptor: Delwin Olivan Princeton University 1 Overview Efficiency concepts EMH implies Martingale Property
More informationBackground Risk and Trading in a Full-Information Rational Expectations Economy
Background Risk and Trading in a Full-Information Rational Expectations Economy Richard C. Stapleton, Marti G. Subrahmanyam, and Qi Zeng 3 August 9, 009 University of Manchester New York University 3 Melbourne
More informationREPORTING BIAS AND INFORMATIVENESS IN CAPITAL MARKETS WITH NOISE TRADERS
REPORTING BIAS AND INFORMATIVENESS IN CAPITAL MARKETS WITH NOISE TRADERS MARTIN HENRIK KLEINERT ABSTRACT. I discuss a disclosure model in which a manager can bias earnings reports. Informed traders acquire
More informationThe Effects of Responsible Investment: Financial Returns, Risk, Reduction and Impact
The Effects of Responsible Investment: Financial Returns, Risk Reduction and Impact Jonathan Harris ET Index Research Quarter 1 017 This report focuses on three key questions for responsible investors:
More informationHigher Order Expectations in Asset Pricing
Higher Order Expectations in Asset Pricing Philippe Bacchetta and Eric van Wincoop Working Paper 04.03 This discussion paper series represents research work-in-progress and is distributed with the intention
More informationRATIONAL BUBBLES AND LEARNING
RATIONAL BUBBLES AND LEARNING Rational bubbles arise because of the indeterminate aspect of solutions to rational expectations models, where the process governing stock prices is encapsulated in the Euler
More informationHomework 2: Dynamic Moral Hazard
Homework 2: Dynamic Moral Hazard Question 0 (Normal learning model) Suppose that z t = θ + ɛ t, where θ N(m 0, 1/h 0 ) and ɛ t N(0, 1/h ɛ ) are IID. Show that θ z 1 N ( hɛ z 1 h 0 + h ɛ + h 0m 0 h 0 +
More informationDevaluation without common knowledge
Devaluation without common knowledge Céline Rochon THEMA, Université de Cergy-Pontoise November 3, 2004 Abstract In an economy with a fixed exchange rate regime that suffers an adverse shock, we study
More informationThe stochastic discount factor and the CAPM
The stochastic discount factor and the CAPM Pierre Chaigneau pierre.chaigneau@hec.ca November 8, 2011 Can we price all assets by appropriately discounting their future cash flows? What determines the risk
More informationMotivation: Two Basic Facts
Motivation: Two Basic Facts 1 Primary objective of macroprudential policy: aligning financial system resilience with systemic risk to promote the real economy Systemic risk event Financial system resilience
More informationFinal Exam II ECON 4310, Fall 2014
Final Exam II ECON 4310, Fall 2014 1. Do not write with pencil, please use a ball-pen instead. 2. Please answer in English. Solutions without traceable outlines, as well as those with unreadable outlines
More informationMicroeconomic Theory II Preliminary Examination Solutions
Microeconomic Theory II Preliminary Examination Solutions 1. (45 points) Consider the following normal form game played by Bruce and Sheila: L Sheila R T 1, 0 3, 3 Bruce M 1, x 0, 0 B 0, 0 4, 1 (a) Suppose
More informationInformation, Imperfect Competition, and Volatility
Information, Imperfect Competition, and Volatility Mahdi Nezafat and Mark Schroder May 5, 07 Abstract We analyze a model of costly private information acquisition and asset pricing under imperfect competition.
More informationInformation acquisition and mutual funds
Information acquisition and mutual funds Diego García Joel M. Vanden February 11, 2004 Abstract We generalize the standard competitive rational expectations equilibrium (Hellwig (1980), Verrecchia (1982))
More informationMarket Size Matters: A Model of Excess Volatility in Large Markets
Market Size Matters: A Model of Excess Volatility in Large Markets Kei Kawakami March 9th, 2015 Abstract We present a model of excess volatility based on speculation and equilibrium multiplicity. Each
More informationMonetary Fiscal Policy Interactions under Implementable Monetary Policy Rules
WILLIAM A. BRANCH TROY DAVIG BRUCE MCGOUGH Monetary Fiscal Policy Interactions under Implementable Monetary Policy Rules This paper examines the implications of forward- and backward-looking monetary policy
More informationA Model of Portfolio Delegation and Strategic Trading
A Model of Portfolio Delegation and Strategic Trading Albert S. Kyle University of Maryland Hui Ou-Yang Cheung Kong Graduate School of Business Bin Wei Baruch College, CUNY This article endogenizes information
More information