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Prices, Price Processes, Volume and Their Information: A Literature Survey

Markus Brunnermeier

FMG Discussion Papers from Financial Markets Group

Abstract: This survey summarises the recent theoretical developments in understanding price processes. After introducing the rational expectations equilibria (REE) concept the limitations of this approach are shown. We illustrate the relationship between partially-revealing REE and incomplete markets and equitisation. The survey explains the No-Speculation Theorem and two different types of No-Trade Theorems and demonstrates the possible occurrence of bubbles in models with higher order uncertainty. In the second section CARA-Gaussian models are classified into five groups. The main focus of this survey is on dynamic REE models explaining price processes and providing a theoretical rationale for technical/chart analysis. In the last section sequential information arrival models are summarised. Herding models are catagorised and the impact of herding in information acquisition on the price process is shown.

Date: 1997-07
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