Speculative investor behavior and learning

Stephen Morris

No 96-5, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: As traders learn about the true distribution of some asset's dividends, a speculative premium occurs as each trader anticipates the possibility of re-selling the asset to another trader before complete learning has occurred. Small differences in prior beliefs lead to large speculative premiums during the learning process. This phenomenon helps explain a paradox concerning the pricing of initial public offerings. The result casts light on the significance of the common prior assumption in economic models.

Keywords: Investments; Stock - Prices (search for similar items in EconPapers)
Date: 1996
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Related works:
Journal Article: Speculative Investor Behavior and Learning (1996)
Working Paper: Speculative Investor Behavior and Learning
Working Paper: Speculative Investor Behavior and Learning'
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