Reply to “Asset trading volume in infinite-horizon economies with dynamically complete markets and heterogeneous agents: Comment”

2006 ◽  
Vol 3 (2) ◽  
pp. 102-105 ◽  
Author(s):  
Kenneth L. Judd ◽  
Felix Kubler ◽  
Karl Schmedders
Keyword(s):  
Trading Volume ◽  
Heterogeneous Agents ◽  
Infinite Horizon ◽  
Complete Markets ◽  
Asset Trading

scholarly journals Asset Trading Volume with Dynamically Complete Markets and Heterogeneous Agents

2003 ◽  
Vol 58 (5) ◽  
pp. 2203-2217 ◽  
Author(s):  
Kenneth L. Judd ◽  
Felix Kubler ◽  
Karl Schmedders
Keyword(s):  
Trading Volume ◽  
Heterogeneous Agents ◽  
Complete Markets ◽  
Asset Trading

scholarly journals Asset trading volume in a production economy

2007 ◽  
Vol 39 (2) ◽  
pp. 231-258 ◽  
Author(s):  
Emilio Espino ◽  
Thomas Hintermaier
Keyword(s):  
Trading Volume ◽  
Production Economy ◽  
Asset Trading

scholarly journals Trade clustering and power laws in financial markets

2020 ◽  
Vol 15 (4) ◽  
pp. 1365-1398
Author(s):  
Makoto Nirei ◽  
John Stachurski ◽  
Tsutomu Watanabe
Keyword(s):  
Financial Markets ◽  
Trading Volume ◽  
Power Laws ◽  
State Model ◽  
Equilibrium Volume ◽  
Private Signals ◽  
Asset Value ◽  
Asset Trading ◽  
Stock Volume ◽  
Two State Model

This study provides an explanation for the emergence of power laws in asset trading volume and returns. We consider a two‐state model with binary actions, where traders infer other traders' private signals regarding the value of an asset from their actions and adjust their own behavior accordingly. We prove that this leads to power laws for equilibrium volume and returns whenever the number of traders is large and the signals for asset value are sufficiently noisy. We also provide numerical results showing that the model reproduces observed distributions of daily stock volume and returns.

INFORMATION DYNAMICS IN FINANCIAL MARKETS

2000 ◽  
Vol 4 (2) ◽  
pp. 139-169 ◽  
Author(s):  
Patrick de Fontnouvelle
Keyword(s):  
Information Acquisition ◽  
Trading Volume ◽  
Rational Expectations ◽  
Information Costs ◽  
Information Dynamics ◽  
Expectation Formation ◽  
Asset Trading ◽  
Future Value ◽  
Simulated Time ◽  
Simulated Time Series

A noisy rational expectations model of asset trading is extended to incorporate costs of information acquisition and expectation formation. Because of the information costs, how much information to acquire becomes an important decision. Agents make this decision by choosing an expectations strategy about the future value of information. Because expectation formation is costly, agents often choose strategies that are simpler (and thus cheaper) than rational expectations. The model's dynamics can be expressed in terms of the market precision, which represents the amount of information acquired by the average agent. Under certain conditions, market precision follows an unstable and highly irregular time path. This irregularity directly affects observable market quantities. In particular, simulated time series for return volatility and trading volume display a copersistence similar to that found in actual financial data.

scholarly journals Heterogeneous Beliefs, Wealth Distribution, and Asset Markets with Risk of Default

2012 ◽  
Vol 102 (3) ◽  
pp. 156-160 ◽  
Author(s):  
Viktor Tsyrennikov
Keyword(s):  
Financial Markets ◽  
Trading Volume ◽  
Wealth Distribution ◽  
Asset Returns ◽  
Heterogeneous Beliefs ◽  
Asset Markets ◽  
Financial Assets ◽  
Asset Trading ◽  
Arrow Securities ◽  
The Rich

We study asset markets and wealth dynamics in the economy with heterogeneous beliefs and risk of default. Agents can trade a full set of Arrow securities but are allowed to default on their delivery promises. Financial markets rationally subject agents to the endogenous “no-default” borrowing limits. Because of the rich menu of financial assets traded in the market speculation opportunities are plentiful. Financial wealth is volatile and the endogenous borrowing limits are always active. Variance of the asset returns is amplified. The asset trading volume is substantial and volatile.

RECURSIVE EQUILIBRIA IN ECONOMIES WITH INCOMPLETE MARKETS

2002 ◽  
Vol 6 (2) ◽  
pp. 284-306 ◽  
Author(s):  
Felix Kubler ◽  
Karl Schmedders
Keyword(s):  
Incomplete Markets ◽  
Heterogeneous Agents ◽  
Infinite Horizon ◽  
State Spaces ◽  
Exogenous Shock ◽  
Asset Pricing Model ◽  
First Order ◽  
Distribution Of Wealth ◽  
Exogenous Shocks ◽  
Equilibrium Prices

We examine minimal sufficient state spaces for equilibria in a Lucas asset pricing model with heterogeneous agents and incomplete markets. It is clear that even if all fundamentals of the economy follow a first-order Markov process, equilibrium prices and allocations generally will depend not only on the current exogenous shock but also on the distribution of wealth among the heterogeneous agents. The main contribution of this paper is to give an example of an infinite-horizon economy with Markovian fundamentals, where the joint process of equilibrium asset holdings and exogenous shocks does not constitute a sufficient state space either.

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