Failing to forecast rare events

• 成果类型: Article
• 署名作者: Bond, Philip; Dow, James
• 署名单位: University of Washington; University of Washington Seattle; University of London; London Business School
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2021.06.028
• 发表日期: 2021
• 页码: 1001-1016
• 关键词: Bid ask spread; Information production; Rare event; Black swan

摘要

Do more talented traders prefer to bet on and against rare events or common events? Bets on rare events include out of the money options. Bets against rare events include the carry trade and investment grade bonds. In a model where traders specialize, equilibrium pricing reflects trading ability: A market with more skilled traders has a larger bid ask spread. We show that lower skill traders bet on and against rare events, while higher skill traders bet on and against frequent events, leading to higher bid-ask spreads in common event assets, and reducing financial markets' ability to predict rare events. (c) 2021 Elsevier B.V. All rights reserved.