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Price distortions under coarse reasoning with frequent trade
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SYSNO ASEP 0455392 Document Type J - Journal Article R&D Document Type Journal Article Subsidiary J Článek ve WOS Title Price distortions under coarse reasoning with frequent trade Author(s) Steiner, Jakub (NHU-N) RID
Stewart, C. (CA)Source Title Journal of Economic Theory. - : Elsevier - ISSN 0022-0531
159 A, September (2015), s. 574-595Number of pages 22 s. Language eng - English Country US - United States Keywords categorization ; bounded rationality ; prices Subject RIV AH - Economics Institutional support NHU-N - RVO:67985998 UT WOS 000361856900026 EID SCOPUS 84938942527 DOI 10.1016/j.jet.2015.07.011 Annotation We study the effect of frequent trading opportunities and categorization on pricing of a risky asset. Frequent opportunities to trade can lead to large distortions in prices if some agents forecast future prices using a simplified model of the world that fails to distinguish between some states. In the limit as the period length vanishes, these distortions take a particular form: the price must be the same in any two states that a positive mass of agents categorize together. Price distortions therefore tend to be large when different agents categorize states in different ways, even if each individual's categorization is not very coarse. Workplace Economics Institute Contact Tomáš Pavela, pavela@cerge-ei.cz, Tel.: 224 005 122 Year of Publishing 2016
Number of the records: 1