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Learning from Others in the Financial Market

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  • Matthias Feiler
  • Thibaut Ajdler

Abstract

Prediction problems in finance go beyond estimating the unknown parameters of a model (e.g. of expected returns). This is because such a model would have to include parameters governing the market participants' propensity to change their opinions on the validity of that model. This leads to a well--known circular situation characteristic of financial markets, where participants collectively create the future they wish to estimate. In this paper, we introduce a framework for organizing multiple expectation models and study the conditions under which they are adopted by a majority of market participants.

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  • Matthias Feiler & Thibaut Ajdler, 2019. "Learning from Others in the Financial Market," Papers 1906.03201, arXiv.org, revised Aug 2019.
    • Handle: RePEc:arx:papers:1906.03201
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    File URL: http://arxiv.org/pdf/1906.03201
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    Cited by:

    1. Matthias J. Feiler & Thibaut Ajdler, 2019. "Model uncertainty in financial forecasting," Papers 1912.10813, arXiv.org.

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