Published August 28, 2017
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Asset Prices and Volume in a Beauty Contest
- Creators
- Biais, Bruno
-
Bossaerts, Peter
Abstract
The dynamics of prices and volume are investigated in a market where agents disagree about the fundamental value of the asset. The distribution of beliefs is not taken to be common knowledge. The resulting infinite hierarchy of beliefs is solved by making the assumption that, prior to the first trading round, agents consider themselves to be average. Speculation is shown to generate substantial volatility and volume, bid and transaction price predictability, rich patterns of volume, and an inverse relationship between changes in transaction prices and the number of trading rounds without volume.
Additional Information
The paper benefited from many conversations with Mahmoud El-Gamal on learning and disagreement, and from comments during seminars at HEC, Université des Sciences Sociales de Toulouse and AFFI.Attached Files
Submitted - sswp832.pdf
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sswp832.pdf
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Additional details
- Eprint ID
- 80817
- Resolver ID
- CaltechAUTHORS:20170825-155217920
- Created
-
2017-08-28Created from EPrint's datestamp field
- Updated
-
2019-10-03Created from EPrint's last_modified field
- Caltech groups
- Social Science Working Papers
- Series Name
- Social Science Working Paper
- Series Volume or Issue Number
- 832