Dynamic Trading Volume
In: Mathematical Finance, Band 27, Heft 2, S. 313-349
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In: Mathematical Finance, Band 27, Heft 2, S. 313-349
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In: Economic notes, Band 33, Heft 1, S. 55-81
ISSN: 1468-0300
This article presents a straightforward technique for computing solutions to discrete, multi‐period consumption/investment problems. It solves for the optimal stochastic consumption plans, as well as the optimal dynamic trading strategies that maximize utility for an individual. The technique permits general utility functions that may or may not be time‐separable. It also allows general changes in the investment opportunity set and allows the user to impose upper and lower bounds on trading behaviour. Divergent borrowing and lending rates can be handled, as can stochastic labour income risks. Computed solutions verify the predictions of well‐known intertemporal works by Merton, Breeden and others. J.E.L.:G13).
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In: NBER working paper series 10820
In: Journal of economic dynamics & control, Band 29, Heft 5, S. 891-930
ISSN: 0165-1889
In: Economics letters, Band 244, S. 111960
ISSN: 0165-1765
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In: CESifo working paper series 2839
In: Empirical and theoretical methods
We investigate the dynamics of prices, information and expectations in a competitive, noisy, dynamic asset pricing equilibrium model. We show that prices are farther away from (closer to) fundamentals compared with average expectations if and only if traders over- (under-) rely on public information with respect to optimal statistical weights. Both phenomena, in turn, occur whenever traders speculate on short-run price movements. For a given, positive level of residual payoff uncertainty, over-reliance on public information obtains if noise trade displays low persistence. This defines a Keynesianʺ region; the complementary region is Hayekianʺ in that prices are systematically closer to fundamentals than average expectations. The standard case of no residual uncertainty and noise trading following a random walk is on the frontier of the two regions and identifies the set of deep parameters for which traders abide by Keynes' dictum of concentrating on an asset long term prospects and those only.ʺ The analysis explains accommodation and trend chasing strategies as well as momentum and reversal.
In: CESifo Working Paper Series No. 2839
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In: NBER Working Paper No. w15205
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In: Adaptive Evolutionary Information Systems
In: Adaptive Evolutionary Information Systems, S. 229-260
In: Adaptive Evolutionary Information Systems