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Modern Approaches to Asset Price Formation: A Survey of Recent Theoretical Literature

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  • Tro Kortian

    (Reserve Bank of Australia)

Abstract

In recent years, there has been much re-assessment and re-evaluation by academic economists of the Efficient Markets Hypothesis. The traditional view, stressing the ability of speculative markets to keep asset prices in line with economic fundamentals, has been challenged by an approach more sympathetic to the role of self-fulfilling expectations, psychology, herd behaviour and other seemingly irrational influences on asset prices. Greater appreciation of the institutional features of real-world asset markets also distinguishes this modern approach. The paper summarises this influential and rapidly-growing body of theoretical literature on asset price formation.

Suggested Citation

  • Tro Kortian, 1995. "Modern Approaches to Asset Price Formation: A Survey of Recent Theoretical Literature," RBA Research Discussion Papers rdp9501, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp9501
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    File URL: https://www.rba.gov.au/publications/rdp/1995/pdf/rdp9501.pdf
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    Cited by:

    1. Kontonikas, Alexandros & Ioannidis, Christos, 2005. "Should monetary policy respond to asset price misalignments?," Economic Modelling, Elsevier, vol. 22(6), pages 1105-1121, December.
    2. Alberto Montagnoli & Oreste Napolitano, 2004. "Financial Condition Index and interest rate settings: a comparative analysis," Money Macro and Finance (MMF) Research Group Conference 2004 1, Money Macro and Finance Research Group.
    3. Aguilar, Javiera & Nydahl, Stefan, 2000. "Central bank intervention and exchange rates: the case of Sweden," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 303-322, December.
    4. Alexandros Kontonikas & Alberto Montagnoli, 2006. "Optimal Monetary Policy And Asset Price Misalignments," Scottish Journal of Political Economy, Scottish Economic Society, vol. 53(5), pages 636-654, November.
    5. Rüffer, Rasmus, 1999. "Implicit government guarantees and bank herding behavior," Discussion Paper Series 1: Economic Studies 1999,06, Deutsche Bundesbank.
    6. Alexandra Lai, 2002. "Modelling Financial Instability: A Survey of the Literature," Staff Working Papers 02-12, Bank of Canada.
    7. Michael Andersen & Robert Subbaraman, 1996. "Share Prices and Investment," RBA Research Discussion Papers rdp9610, Reserve Bank of Australia.

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