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Alternative models of security price equilibrium
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Courtenay, Roger A. (1997) Alternative models of security price equilibrium. PhD thesis, University of Warwick.
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Official URL: http://webcat.warwick.ac.uk/record=b1403900~S15
Abstract
The major determinant of the performance of financial markets is the nature of the
information available, both in terms of the overall quality of the information held by
investors, and the distribution of information amongst investors. The nature of this
issue makes it difficult to model realistically. This thesis marks an attempt to gain
insights to the behaviour of securitiesm arkets by investigating the consequences of
relaxing, in a realistic way, some of the restrictions on information in existing models.
The core of the thesis consists of formal models of the stock market. The first of these
is a development of the information aggregation literature, and in particular the model
of Hellwig (1980). It looks at the ability of prices to aggregate information that is
dispersed among agents who specialise in acquiring information about particular
components of the factors that determine the future stock value. We find that
narrowing the extent of specialisation beyond a certain point will inevitably lead to a
reduction in the informativeness of the market price.
The second model is also a development of the information aggregation literature, and
looks at the implications of investors obtaining private information about the extent of
liquidity trading. We find that such a framework gives rise to the possibility of
multiple equilibria and price 'crashes'. The third model is an extension of the second
in which the acquisition of information is made endogenousa, nd shows that the main
results of that model are retained. It also shows up the dominance of the cost of
information about value, rather than about liquidity trading, in determining the overall
informativeness of the price.
After investigating the possible consequences of, and providing evidence for, the
existence of positive feedback trading we investigate the behaviour of a market in
which investors exhibiting such behaviour are combined with investors who trade on
the basis of value in a form as in De Long, Shleifer, Summers & Waldmann (1989,
1990a). We then apply results from Hart (1977) to determine the conditions under
which manipulation can be possible. A number of model characteristics are shown to
be possible depending on the specific form of the feedback trading. We finish by
adding shocks to the system, as in De Long et. al., and look at the effect of both
competitive and monopolistic speculation. We find that competitive speculation may
be more destabilising than monopolistic speculation, and that positive feedback
trading is more destabilising when it acts after a delay.
Item Type: | Thesis (PhD) | ||||
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Subjects: | H Social Sciences > HG Finance | ||||
Library of Congress Subject Headings (LCSH): | Securities -- Prices, Stock exchanges -- Econometric models | ||||
Official Date: | October 1997 | ||||
Dates: |
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Institution: | University of Warwick | ||||
Theses Department: | Warwick Business School | ||||
Thesis Type: | PhD | ||||
Publication Status: | Unpublished | ||||
Supervisor(s)/Advisor: | Hodges, Stewart D. | ||||
Sponsors: | Economic and Social Research Council (Great Britain) (ESRC) (R0042933408) ; Warwick Business School | ||||
Extent: | xi, 308 leaves | ||||
Language: | eng |
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