Too good to be true: A theory

John Conlon and Feng Liu

Economics Letters, 2024, vol. 244, issue C

Abstract: We use a Gaussian mixture prior with two clusters to explain market fears. We show that a surprisingly positive signal can shake investors’ confidence in their understanding of the market, and in the process, potentially lower their expectation of an asset’s value.

Keywords: Gaussian mixture model; Bayesian Learning (search for similar items in EconPapers)
JEL-codes: C11 C46 D83 G12 G14 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:244:y:2024:i:c:s0165176524004543

DOI: 10.1016/j.econlet.2024.111970

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