Puzzle solver

Christian, Mueller-Kademann (2009): Puzzle solver.

Abstract

This paper presents a model for asset markets with a subjectively rational solution for the price of the traded asset. Traders cannot act objectively rational and an increase in the number of traders does not enlarge the information set neccessary for determining the “true” price. Consequentely, many well-known “puzzles” vanish as there is no objective truth to which data could live up. An empirical test is conducted which demonstrates the relevance of the argument across time, space, and markets.

• Item Type: MPRA Paper
• Language: English
• Keywords: rational expectations, uncertainty, Tobin tax, financial crisis
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods ; Simulation Methods; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F47 - Forecasting and Simulation: Models and Applications; F - International Economics > F3 - International Finance > F31 - Foreign Exchange

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