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Zbl 1101.60047
Guasoni, Paolo
Asymmetric information in fads models. (English)
[J] Finance Stoch. 10, No. 2, 159-177 (2006). ISSN 0949-2984; ISSN 1432-1122

The authors study fads models as plausible alternatives to the efficient markets/constant expected returns assumptions. Under these models, logarithms of asset prices embody both a martingale component, with permanent shocks, and a stationary component, with temporary shocks. The basic questions are: do the fads exist and if they exist, do they matter? The paper addresses these two problems in a continuous-time version of the fads models. Two types of agents are considered: informed agents who observe both fundamental and market values and uninformed agents who only observe market values. For both agents, the problem of logarithmic utility maximization from terminal wealth is studied and a closed-form solution for expected logarithmic utilities is obtained. Then the decomposition of the asset price dynamics for uninformed agent is exploited to test statistically the presence of fads from market data.
[Yuliya S. Mishura (Ky{\"\i}v)]

MSC 2000:: *60H30 Appl. of stochastic analysis
60G15 Gaussian processes
60G44 Martingales with continuous parameter
60H10 Stochastic ordinary differential equations
62M07 Non-Markovian processes: hypothesis testing
91B84 Economic time series analysis

Keywords: Ornstein-Uhlenbeck process; Hitsuda representation; fads models; asymmetric information

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