Local Interaction, Incomplete Information and Properties of Asset Prices

• Richard Hule ^[1] ; Jochen Lawrenz ^[2]
  1. [1] Department of Economics, Innsbruck University
  2. [2] Department of Banking & Finance, Innsbruck University
• Localización: Complexity and Artificial Markets, 2008, ISBN 9783540705567, págs. 91-105
• Idioma: inglés
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• Resumen

  • In this article, we introduce local interaction in a pure exchange economy where the endowment process follows a simple hidden Markov chain and risk-averse agents have incomplete information about the regime. We show that the interplay between internal, external local and external global effects (a) can account for different temporal behavior of the price-dividend ratio, (b) can reproduce some stylized facts of price changes and (c) suggest that market efficiency in the sense of return predictability may be inversely related to the information precision.