Learning from Others in the Financial Market

Matthias Feiler and Thibaut Ajdler

Papers from arXiv.org

Abstract: Prediction problems in finance go beyond estimating the unknown parameters of a model (e.g. of expected returns). This is because such a model would have to include parameters governing the market participants' propensity to change their opinions on the validity of that model. This leads to a well--known circular situation characteristic of financial markets, where participants collectively create the future they wish to estimate. In this paper, we introduce a framework for organizing multiple expectation models and study the conditions under which they are adopted by a majority of market participants.

Date: 2019-06, Revised 2019-08
New Economics Papers: this item is included in nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1906.03201

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