Please use this identifier to cite or link to this item: http://hdl.handle.net/10739/2327
Title: Asset trading under non-classical ambiguity and heterogeneous beliefs
Authors: Patra, Sudip
Keywords: Asset trading
Speculative asset prices
Heterogeneous beliefs
Quantum probability
Issue Date: 7-Mar-2019
Publisher: Physica A
Citation: Patra, S., & Khrennikova, P. (2019). Asset trading under non-classical ambiguity and heterogeneous beliefs [Abstract]. Physica A: Statistical Mechanics and Its Applications, 521, 562-577. doi:10.1016/j.physa.2019.01.067
Abstract: We propose discrete time asset trading framework based on quantum probability formalism that represents well the ambiguity of agents in respect to the fundamental values and price states of the traded assets. Divergence of beliefs alike classical finance frameworks (e.g. works by Harrison and Kreps, (1978) ; Scheinkman and Xiong, (2003) produces differentexpectationsofagentsaboutthefuturepricedistributionofthetradedriskyasset. The model accounts for the emergence of heterogeneous beliefs from agents’ ambiguity about both the future asset price states and the fundamentals, as opposed to the strands that attribute heterogeneous beliefs to asymmetric information and different, yet firm prior beliefs about stochastic processes over fundamentals. The introduced quantum probability paradigm allows to depict a genuine ambiguity of agents in respect to the future realization of pay off relevant variables and prices. There are two sources of ambiguity: (i) the imperfect market knowledge of agents, manifest in a divergence of ambiguous priors,(ii) uncertainty about the probability distribution of price states and dividends in the next trading period. Agents update their beliefs via Born rule(instead of Bayesian update) when observing the realized price outcomes and dividend signals. An important feature relates to individual traders’ not possessing a joint probability distribution over the payoff relevant variables and price outcomes that brings up attraction, respective aversion to ambiguity in their interpretation of public signals. On the level of the composite model of stock exchange, formed by the expectations of two ensembles of agents,an interference term can serve as a quantitative testable prediction in respect to the excess volatility of asset prices created by traders’ optimistic and pessimistic beliefs.
URI: http://hdl.handle.net/10739/2327
ISSN: 0378-4371
Appears in Collections:JGU Research Publications

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