Divergent behavior in markets with idiosyncratic private information

David Goldbaum

No 34, Working Paper Series from Economics Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: Perpetually evolving divergent trading strategies is the natural consequence of a market with idiosyncratic private information. In the face of intrinsic uncertainty about other traders' strategies, participants resort to learning and adaptation to identify and exploit profitable trading opportunities. Model-consistent use of market-based information generally improves price performance but can inadvertently produce episodes of sudden mispricing. The paper examines the impact of trader's use of information and bounded rationality on price efficiency.

Keywords: Heterogeneous Agents; Efficient Markets; Learning; Dynamics; Computational Economics (search for similar items in EconPapers)
JEL-codes: C62 D82 G14 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2016-02-22
New Economics Papers: this item is included in nep-cmp, nep-mic and nep-mst
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Related works:
Journal Article: Divergent Behavior in Markets with Idiosyncratic Private Information (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:uts:ecowps:34

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