scholarly journals Efficiency of Experimental Security Markets with Insider Information: An Application of Rational-Expectations Models

1982 ◽  
Vol 90 (4) ◽  
pp. 663-698 ◽  
Author(s):  
Charles R. Plott ◽  
Shyam Sunder
Keyword(s):  
Rational Expectations ◽  
Insider Information ◽  
Security Markets

scholarly journals Dynamic Noisy Rational Expectations Equilibrium With Insider Information

Econometrica ◽  
2020 ◽  
Vol 88 (6) ◽  
pp. 2697-2737
Author(s):  
Jerome Detemple ◽  
Marcel Rindisbacher ◽  
Scott Robertson
Keyword(s):  
Private Information ◽  
Rational Expectations ◽  
Absolute Risk ◽  
Asset Price ◽  
Public Information ◽  
Noise Traders ◽  
Insider Information ◽  
Special Cases ◽  
Non Gaussian ◽  
Partial Communication

We study equilibria in multi‐asset and multi‐agent continuous‐time economies with asymmetric information and bounded rational noise traders. We establish the existence of two equilibria. First, a full communication equilibrium where the informed agents' signal is disclosed to the market and static policies are optimal. Second, a partial communication equilibrium where the signal disclosed is affine in the informed and noise traders' signals, and dynamic policies are optimal. Here, information asymmetry creates demand for two public funds, as well as a dark pool where private information trades can be implemented. Markets are endogenously complete and equilibrium returns have a three factor structure with stochastic factors and loadings. Results are valid for constant absolute risk averse investors, general vector diffusions for fundamentals, nonlinear terminal payoffs, and non‐Gaussian noise trading. Asset price dynamics and public information flows are endogenous, and rational expectations equilibria are special cases of the general results.

scholarly journals Reconsidering Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets

2019 ◽  
Author(s):  
Brice Corgnet ◽  
Cary Deck ◽  
Mark DeSantis ◽  
Kyle W. Hampton ◽  
Erik O. Kimbrough
Keyword(s):  
Rational Expectations ◽  
Security Markets

scholarly journals Reconsidering Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets

2019 ◽  
Author(s):  
Brice Corgnet ◽  
Cary A. Deck ◽  
Mark DeSantis ◽  
Kyle W. Hampton ◽  
Erik O. Kimbrough
Keyword(s):  
Rational Expectations ◽  
Security Markets

Rational Expectations and Inflation

2017 ◽  
Author(s):  
Thomas J. Sargent
Keyword(s):  
World War I ◽  
French Revolution ◽  
Rational Expectations ◽  
Ronald Reagan ◽  
Fiscal Policies ◽  
Economic Policies ◽  
Budget Deficits ◽  
Nobel Lecture ◽  
Economic Decisions ◽  
The French Revolution

This collection of essays uses the lens of rational expectations theory to examine how governments anticipate and plan for inflation, and provides insight into the pioneering research for which the author was awarded the 2011 Nobel Prize in economics. Rational expectations theory is based on the simple premise that people will use all the information available to them in making economic decisions, yet applying the theory to macroeconomics and econometrics is technically demanding. This book engages with practical problems in economics in a less formal, noneconometric way, demonstrating how rational expectations can satisfactorily interpret a range of historical and contemporary events. It focuses on periods of actual or threatened depreciation in the value of a nation's currency. Drawing on historical attempts to counter inflation, from the French Revolution and the aftermath of World War I to the economic policies of Margaret Thatcher and Ronald Reagan, the book finds that there is no purely monetary cure for inflation; rather, monetary and fiscal policies must be coordinated. This fully expanded edition includes the author's 2011 Nobel lecture, “United States Then, Europe Now.” It also features new articles on the macroeconomics of the French Revolution and government budget deficits.

Opportunities for improving the insider laws: A comparative analysis of the practice in the USA and Russia

2020 ◽  
Vol 26 (4) ◽  
pp. 796-814
Author(s):  
E.K. Ovakimyan
Keyword(s):  
Financial Markets ◽  
Insider Trading ◽  
Negative Impact ◽  
Business Environment ◽  
Market Manipulation ◽  
Insider Information ◽  
Analysis And Synthesis ◽  
The Usa ◽  
Legislative Perfection ◽  
Definition Of

Subject. The article examines the laws regulating insider trading. Objectives. The study outlines recommendations for refining Law On Countering the Illegal Use of Insider Information and Market Manipulation and Amendments to Some Legislative Acts of the Russian Federation, № 224-ФЗ of July 27, 2010. Methods. The methodological framework includes a general dialectical method, analysis and synthesis, induction and deductions, and some specific methods, such as comparative and formal logic analysis to specify the definition of insider information, structural logic and functional analysis to improve the mechanism for countering insider trading and market manipulation. Results. We discovered key drawbacks to be addressed so as to improve the business environment in Russia. Although the Russia laws mainly mirror the U.S. laws, they present a more extended list of terms concerning the insider information. I believe the legislative perfection should be continued. Conclusions and Relevance. The study helps apply the findings to outline a new legislative regulation or amend the existing ones, add a new mention on the course of financial markets to students’ books, develop new methods for detecting and countering and improving the existing ones. If all parties to insider relationships use the findings, they will prevent insider trading crimes in financial markets and (or) reduce the negative impact of such crimes on the parties.

The Micro and Macro of Managerial Beliefs

2020 ◽  
Author(s):  
Jose Maria Barrero
Keyword(s):  
Rational Expectations ◽  
Asset Price ◽  
Heterogeneous Firms ◽  
Adjustment Costs ◽  
Consumer Welfare ◽  
Sales Growth ◽  
Firm Level ◽  
Managerial Decisions ◽  
Managerial Beliefs ◽  
Growth Volatility

This paper studies how biases in managerial beliefs affect managerial decisions, firm performance, and the macroeconomy. Using a new survey of US managers I establish three facts. (1) Managers are not over-optimistic: sales growth forecasts on average do not exceed realizations. (2) Managers are overprecise (overconfident): they underestimate future sales growth volatility. (3) Managers overextrapolate: their forecasts are too optimistic after positive shocks and too pessimistic after negative shocks. To quantify the implications of these facts, I estimate a dynamic general equilibrium model in which managers of heterogeneous firms use a subjective beliefs process to make forward-looking hiring decisions. Overprecision and overextrapolation lead managers to overreact to firm-level shocks and overspend on adjustment costs, destroying 2.1 percent of the typical firm’s value. Pervasive overreaction leads to excess volatility and reallocation, lowering consumer welfare by 0.5 to 2.3 percent relative to the rational expectations equilibrium. These findings suggest overreaction may amplify asset-price and business cycle fluctuations.

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