Noise trading in small markets
Article Abstract:
Considering noise traders as agents with unpredictable beliefs, we show that in an imperfectly competitive market with risk averse investors, noise traders may earn higher expected utility than rational investors. This happens when, by deviating from the Nash equilibrium strategy, noise traders hurt rational investors more than themselves. It follows that the willingness of arbitrageurs to exploit noise traders' misperceptions is lower relative to a perfectly competitive economy. This result reinforces the theory that noise trading may explain closed-end fund discounts and small firms' returns, since these markets are less competitive than the market for large firms' stock. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1996
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The trading decision and market clearing under transaction price uncertainty
Article Abstract:
The trading decision of a particular investor is modeled given that person's demand function to hold shares of an asset, the expectation of what the market clearing price will be, and the design of the market that determines the translation of orders into trades. The batched trading, or periodic call, regime is the market design considered, and the aggregation of orders to ascertain market clearing values of price and volume are modeled, assuming investors are distributed by their likelihood of holding shares, as well as to show the differences between these solutions, with trading friction, and Pareto efficient values. Also described is the relevance of the analysis for different issues surrounding market design.
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1985
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Commercial bank portfolio behavior and endogenous uncertainty
Article Abstract:
Bayesian information can be used as a variable to determine the optimal level of asset holdings in a portfolio. It can also be used to assess the impact of information on portfolio behavior in a statistically satisfactory manner. In the Bayesian-based model of bank portfolio behavior, information affecting the market is considered economic input, and shown to have equal marginal benefits and costs. The optimal demand for information is derived by treating the economic input with comparative-static analyses methods that accommodate interest rate changes and exogenous uncertainty.
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1986
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