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Prices, Price Processes, Volume and Their Information: A Literature Survey

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  • Markus K Brunnermeier

Abstract

This survey summarises the recent theoretical developments in understanding price processes. After introducing the rational expectations equilibria (REE) concept the limitations of this approach are shown. We illustrate the relationship between partially-revealing REE and incomplete markets and equitisation. The survey explains the No-Speculation Theorem and two different types of No-Trade Theorems and demonstrates the possible occurrence of bubbles in models with higher order uncertainty. In the second section CARA-Gaussian models are classified into five groups. The main focus of this survey is on dynamic REE models explaining price processes and providing a theoretical rationale for technical/chart analysis. In the last section sequential information arrival models are summarised. Herding models are catagorised and the impact of herding in information acquisition on the price process is shown.

Suggested Citation

  • Markus K Brunnermeier, 1997. "Prices, Price Processes, Volume and Their Information: A Literature Survey," FMG Discussion Papers dp270, Financial Markets Group.
    • Handle: RePEc:fmg:fmgdps:dp270
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    References listed on IDEAS

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    1. Xavier Vives, 1993. "How Fast do Rational Agents Learn?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(2), pages 329-347.
    2. Jiang Wang, 1993. "A Model of Intertemporal Asset Prices Under Asymmetric Information," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(2), pages 249-282.
    3. Treynor, Jack L & Ferguson, Robert, 1985. "In Defense of Technical Analysis," Journal of Finance, American Finance Association, vol. 40(3), pages 757-773, July.
    4. Trueman, Brett, 1994. "Analyst Forecasts and Herding Behavior," The Review of Financial Studies, Society for Financial Studies, vol. 7(1), pages 97-124.
    5. Zwiebel, Jeffrey, 1995. "Corporate Conservatism and Relative Compensation," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 1-25, February.
    6. Wang, Jiang, 1994. "A Model of Competitive Stock Trading Volume," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 127-168, February.
    7. Jianbo Zhang, 1997. "Strategic Delay and the Onset of Investment Cascades," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 188-205, Spring.
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