TY - JOUR
T1 - Price discovery in the small and in the large
T2 - Momentum and reversal, bubbles, and crashes
AU - Kedar-Levy, Haim
N1 - Publisher Copyright:
© 2019 Elsevier B.V.
PY - 2020/3/1
Y1 - 2020/3/1
N2 - Using a discrete-time asset-pricing model, I specify the economic rationale for a rich array of price dynamics. Two boundedly-rational investors with different risk preferences trade periodically, where excess supply is cleared by a tâtonnement process. Cast at the core of asset-pricing modeling, this structure allows me to explore price discovery intra-periodically, and over time. If dividends are observable, the price converges to Merton's ICAPM, but if investors rely on past realizations, momentum and reversal patterns emerge, which might escalate to bubbles and crashes. The model features increasing volume but declining liquidity during positive bubbles, and lowest liquidity after negative bubbles.
AB - Using a discrete-time asset-pricing model, I specify the economic rationale for a rich array of price dynamics. Two boundedly-rational investors with different risk preferences trade periodically, where excess supply is cleared by a tâtonnement process. Cast at the core of asset-pricing modeling, this structure allows me to explore price discovery intra-periodically, and over time. If dividends are observable, the price converges to Merton's ICAPM, but if investors rely on past realizations, momentum and reversal patterns emerge, which might escalate to bubbles and crashes. The model features increasing volume but declining liquidity during positive bubbles, and lowest liquidity after negative bubbles.
KW - Bubble
KW - Crash
KW - Momentum
KW - Price discovery
KW - Reversal
UR - http://www.scopus.com/inward/record.url?scp=85070398126&partnerID=8YFLogxK
U2 - 10.1016/j.finmar.2019.08.001
DO - 10.1016/j.finmar.2019.08.001
M3 - Article
AN - SCOPUS:85070398126
SN - 1386-4181
VL - 48
JO - Journal of Financial Markets
JF - Journal of Financial Markets
M1 - 100505
ER -