 New Stock Market ModelBrian Thomas Finance from University Library of Munich, Germany Abstract: In the product economy there is no debate as to whether the market price is the 'real' price, but instead is described as being the 'real' price. This approach has not been continued into the securities market because it is impossible to apply existing theoretical pricing mechanisms. Supply and demand schedules are pointless when applied to securities. The author provides a novel pricing mechanism which is appropriate to securities. The pricing mechanism is based on a simple set of propositions which are able to account for complex behavior without the need to turn a blind eye to unexplained phenomena. The model divides buyers of stock into two categories, those who base expectations for future gain on relative comparisons of current price to an expected future price and those who base expectations on the absolute current price. When the market is dominated by the first category price will be driven to a moderating equilibrium no matter where the starting point. When it is dominated by the latter prices will be driven to either the high or low extreme, depending on the starting point. This latter result explains market run ups and the resulting crashes. JEL-codes: G10 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpfi:9610005 Access Statistics for this paper More papers in Finance from University Library of Munich, Germany |
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