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Market Selection

  • Stephen Ross


  • Mark Westerfield


  • Jiang Wang


  • Leonid Kogan


agents do not survive and do not affect prices in the long run. If relative risk aversion is unbounded, however, they may survive, and survival is neither necessary nor sufficient for their impact on prices. We provide necessary and sufficient conditions for price impact, as well as examples of price impact without survival and vice versa. Our results extend to economies with state-dependent utility functions such as habit formation.

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Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 274.

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Date of creation: 2009
Date of revision:
Handle: RePEc:red:sed009:274
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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  1. Wei Xiong & Hongjun Yan, 2010. "Heterogeneous Expectations and Bond Markets," Review of Financial Studies, Society for Financial Studies, vol. 23(4), pages 1433-1466, April.
  2. De Long, J. Bradford & Shleifer, Andrei & Summers, Lawrence H. & Waldmann, Robert J., 1991. "The Survival of Noise Traders in Financial Markets," Scholarly Articles 3725470, Harvard University Department of Economics.
  3. John Y. Campbell & John H. Cochrane, 1995. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," NBER Working Papers 4995, National Bureau of Economic Research, Inc.
  4. Andrew B. Abel, . "Asset Prices Under Habit Formation and Catching Up With the Jones," Rodney L. White Center for Financial Research Working Papers 01-90, Wharton School Rodney L. White Center for Financial Research.
  5. Hongjun Yan, 2008. "Natural Selection in Financial Markets: Does it Work?," Yale School of Management Working Papers amz2648, Yale School of Management, revised 01 May 2008.
  6. Larry Blume & David Easley, 2001. "If You're So Smart, Why Aren't You Rich? Belief Selection in Complete and Incomplete Markets," Cowles Foundation Discussion Papers 1319, Cowles Foundation for Research in Economics, Yale University.
  7. Alvaro Sandroni, 2000. "Do Markets Favor Agents Able to Make Accurate Predicitions?," Econometrica, Econometric Society, vol. 68(6), pages 1303-1342, November.
  8. Bernard Dumas & Alexander Kurshev & Raman Uppal, 2007. "Equilibrium Portfolio Strategies in the Presence of Sentiment Risk and Excess Volatility," NBER Working Papers 13401, National Bureau of Economic Research, Inc.
  9. Fedyk, Yuriy & Walden, Johan, 2007. "High-Speed Natural Selection in Financial Markets with Large State Spaces," SIFR Research Report Series 52, Institute for Financial Research.
  10. Blume, Lawrence & Easley, David, 1992. "Evolution and market behavior," Journal of Economic Theory, Elsevier, vol. 58(1), pages 9-40, October.
  11. Leonid Kogan & Stephen Ross, 2004. "The Price Impact and Survival of Irrational Traders," 2004 Meeting Papers 35, Society for Economic Dynamics.
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