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Asset Prices and Volume in a Beauty Contest

Biais, Bruno and Bossaerts, Peter (1993) Asset Prices and Volume in a Beauty Contest. Social Science Working Paper, 832. California Institute of Technology , Pasadena, CA. (Unpublished) https://resolver.caltech.edu/CaltechAUTHORS:20170825-155217920

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Abstract

The dynamics of prices and volume are investigated in a market where agents disagree about the fundamental value of the asset. The distribution of beliefs is not taken to be common knowledge. The resulting infinite hierarchy of beliefs is solved by making the assumption that, prior to the first trading round, agents consider themselves to be average. Speculation is shown to generate substantial volatility and volume, bid and transaction price predictability, rich patterns of volume, and an inverse relationship between changes in transaction prices and the number of trading rounds without volume.


Item Type:Report or Paper (Working Paper)
ORCID:
AuthorORCID
Bossaerts, Peter0000-0003-2308-2603
Additional Information:The paper benefited from many conversations with Mahmoud El-Gamal on learning and disagreement, and from comments during seminars at HEC, Université des Sciences Sociales de Toulouse and AFFI.
Group:Social Science Working Papers
Subject Keywords:Disagreement, Speculation, Beliefs Hierarchy, Financial Markets, Volume, Volatility.
Series Name:Social Science Working Paper
Issue or Number:832
Record Number:CaltechAUTHORS:20170825-155217920
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20170825-155217920
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:80817
Collection:CaltechAUTHORS
Deposited By: Jacquelyn Bussone
Deposited On:28 Aug 2017 20:45
Last Modified:03 Oct 2019 18:35

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