Prospect Theory and market quality

• 成果类型: Article
• 署名作者: Pasquariello, Paolo
• 署名单位: University of Michigan System; University of Michigan
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2013.09.010
• 发表日期: 2014
• 页码: 276-310
• 关键词: Prospect theory; market liquidity; volatility; trading volume; Price efficiency; Endogenous information acquisition

摘要

We study equilibrium trading strategies and market quality in an economy in which speculators display preferences consistent with Prospect Theory (Kahneman and Tversky, [39]; Tversky and Kahneman, [631), i.e., loss aversion and mild risk seeking in losses. Loss aversion (risk seeking in losses) induces speculators to trade less (more), and less cautiously (more aggressively), with their private information but also makes them less (more) inclined to purchase private information when it is costly in order to mitigate (enhance) their perceived risk of a trading loss. We demonstrate that these forces have novel, nontrivial, state-dependent effects on equilibrium market liquidity, price volatility, trading volume, market efficiency, and information production. (C) 2013 Elsevier Inc. All rights reserved.